Forecasts on the shilling by Citi and Standard Bank of South Africa see it weakening further to the dollar, to the 94.50-95 level by the end of the year. PHOTO | FILE
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But analysts expect it to weaken further to the dollar by end of the year.
The shilling has gained on its East African peers to emerge the best performing regional currency so far this year helped by a wider export base and strong investor inflows.
The Ugandan shilling has depreciated by 9.7 per cent this year to its Kenyan counterpart to exchange at 31.34 units, while the Tanzanian shilling is exchanging at 20.02 units to the Kenya shilling representing a 6.6 per cent depreciation.
To the dollar—which is main reference point in trade—the Kenyan currency has depreciated by 1.1 per cent this year, lower than Tanzania (5.09 per cent), Uganda (3.3 per cent), Rwanda (1.75 per cent) and another key trading partner, Egypt (5.6 per cent).
In terms of trade, the weakening of regional currencies to the Kenyan shilling and the dollar creates concern for exporters given that the East African countries form Kenya’s biggest export destination.
“The shilling has tended to outperform the other regional currencies because Kenya has a larger basket of exporter proceeds than its neighbours, such as horticulture, coffee, tea, diaspora flows, other commodities into the neighbouring countries, offshore flows into Kenyan debt and equities, and foreign exchange reserves,” said Ecobank country treasurer for Kenya Bobby Otieno.
Mr Otieno said Kenya is still getting decent flows from conference tourism, while the relative ease with which offshore investors can enter and exit the Kenyan market and the stability of the Kenya shilling have also attracted inflows that provide the currency with support.
“Local exporters will however always advocate for a weaker shilling so as to earn more foreign currency proceeds for their goods,” he added.
Forecasts on the shilling by Citi and Standard Bank of South Africa see it weakening further to the dollar, to the 94.50-95 level by the end of the year.
Standard Bank noted the shilling’s appreciation on a trade-weighted basis— an indicator used to compare the exchange rate of a country against those of their major trading partners— makes it unlikely that Central Bank will be too keen to prop up the currency.
Real appreciation
‘‘They (CBK) are likely to welcome this moderate upward drift in the exchange rate (to the dollar) as it would negate real appreciation of the shilling,” said Standard Bank in their African markets outlook for 2015.
The exports to regional countries have declined over a three-year period, coinciding with a period of relative appreciation of the shilling against the other currencies.
According to the Kenya Bureau of Statistics, (KNBS) Kenya’s exports to Uganda in the 11 months to November 2014 stood at Sh44.8 billion and those to Tanzania at Sh32.24 billion.
Exports to Uganda stood at Sh75.9 billion in 2011 while those to Tanzania were Sh41.7 billion, according to KNBS.
The total exports to African countries in 2011 were Sh247.6 billion compared to Sh231 billion at end of 2013 as per the latest annual totals.
Kenya’s other export destinations include the Comesa region, the United Kingdom and the Netherlands (horticulture).
The Kenya shilling has strengthened over the past year to both the Euro and the British Pound, at 11.8 and 2.7 per cent respectively. Both currencies have also weakened to the dollar in recent months as the US currency gains across global markets.
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