The Kenya shilling is set to remain stable this year at above the Sh100 mark to the dollar riding on support from Central Bank of Kenya, analysts at Stratlink Africa say. PHOTO | FILE
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The Kenya shilling is set to remain stable this year at above the Sh100 mark to the dollar riding on support from Central Bank of Kenya, analysts at Stratlink Africa say.
Analysts at Cytonn Investments however expect the shilling to come under pressure from a strengthening dollar and widening current account deficit.
The Kenya shilling is set to remain stable this year at above the Sh100 mark to the dollar riding on support from Central Bank of Kenya, analysts at Stratlink Africa say.
The research firm expects the currency to trade between Sh101 and Sh103 to the dollar in the first three months of the year.
“The shilling will be supported by the dissipation of disturbance from US Fed rate hike expectation and a steady rise in foreign exchange reserves that strengthen the Central Bank of Kenya’s (CBK) ability to support the shilling,” said Stratlink Africa in a report distributed to investors.
Stratlink said a stable shilling will be the main reason behind CBK’s decision to hold the Central Bank Rate at the current level of 11.5 per cent in the next monetary policy committee meeting.
The committee will be meeting next week, the first time it has done so this year.
Depreciation of the shilling was a game changer last year as it drove interest rates and price of imported goods up. Inflationary pressures piled up as liquidity levels in the market rose driven by easing stance taken by CBK. The easing was driven by Treasury’s need to borrow at lower interest rate.
The shilling plummeted to lows of Sh107 to the dollar last year as it lost 13 per cent to the green back.
Analysts at Cytonn Investments however expect the shilling to come under pressure from a strengthening dollar and widening current account deficit.
“We expect the deficit to widen in 2016 given a large import bill as a result of the ongoing government infrastructure projects,” said Cytonn Investments.
The CBK has been bulking up its foreign currency reserve giving it ammunition to protect the shilling. As at end of December the bank was holding $7.07 billion in reserve, equivalent to 4.5 times Kenya’s monthly import bill.
The regulator is yet to tap into the precautionary loan available at call from International Monetary Fund to protect the shilling. Cytonn expects the shilling to weaken, a position that will hurt corporate earnings as was witnessed last year.
Fifteen listed companies have stated that they expect to make at least 25 per cent less profits than 2014 citing the weakening of the shilling.
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