Shilling tipped to stabilise in Dec after volatile November

The shilling has been tipped to regain stability this month after volatility in November as dollar demand by corporates eases with December diaspora inflows projected to rise.

Analysts at research firm Stratlink Africa say the signal sent by Central Bank of Kenya Monetary Policy Committee (MPC) last week, when it held the base rate stable, will calm the market sufficiently to relieve some of the anxieties that were putting the shilling under pressure.

The shilling slid progressively over the past two months, falling from 101.15/101.25 to the dollar at the beginning of October to 101.80/102.00 at the end of November.

The analysts now project a halt in further slide, reckoning that dollar demand will slow down going into the festive season as inflows go up.

“We expect the local unit to remain stable in the near-term buoyed by two factors: Foreign exchange reserves (at $7.33 billion, equivalent of 4.8 months of import cover) that give the Central Bank capacity to respond to any pressures,” say Stratlink in its December markets update.

“Recent monetary policy adjustments by the central bank are likely to have been a source of confidence for the investment community with a dovish stance widely interpreted to indicate minimal pressure lurking in the near term horizon.”

A bank dealer was quoted by Reuters saying that data trends show remittances are likely to go up in December as Kenyans abroad send money for the festive season, increasing dollar supply in the market and support the shilling.

READ: CBK holds lending rate despite pressure on the shilling

The CBK data shows that diaspora remittances stood at $142.5 million (Sh14.5 billion) in October, compared to $137.1 million (Sh13.9 billion) in the same month in 2015.

The heavy demand from corporates, especially those looking to raise dollars to pay dividends to foreign investors, was seen as a cause of the pressure on the shilling last month. The bulk of these payments have now been done, however.

The two largest listed firms, Safaricom and EABL, paid out their dividends on December 1 and November 30 respectively.

Safaricom and EABL together paid at least Sh25 billion in dividends — translating to about $250 million — to British multinational parents Vodafone and Diageo, which hold majority stakes in the two Kenyan firms.

The CBK said in the MPC report last Monday that it expects forex market stability to be aided by the narrowing current account deficit (at -5.3 per cent in October) and reiterated that it still has the IMF standby facility of $1.5 billion to call upon in case of market shocks.

“The foreign exchange market continues to be supported by the narrowing of the current account deficit mainly due to lower imported petroleum prices, lower imports of machinery and equipment and resilient diaspora remittances,” said the CBK.