Currencies

Shilling projected to hold steady versus dollar

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Central Bank of Kenya (CBK). FILE PHOTO | NMG

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Summary

  • The currency slipped to 109.05 against the dollar around 2.44pm from 108.96 closing on Tuesday, before strengthening to 108.85 at around 3.34pm.
  • A stable shilling eases pressure on cost of living because Kenya remains a net importer of petroleum products largely consumed in transportation and raw materials for manufacturing sector.
  • A weaker currency, on the other hand, implies increased income for exporters of farm produce such as tea, horticulture and coffee who largely earn dollars and Euros as well as families who rely on remittances from relatives and friends abroad.

The Kenyan shilling touched a near record low against the US dollar during early intraday trading yesterday before stabilising towards the close of the session, with traders projecting the currency to hold steady in coming days.

The currency slipped to 109.05 against the dollar around 2.44pm from 108.96 closing on Tuesday, before strengthening to 108.85 at around 3.34pm.

“The shilling has continued to remain stable (against the dollar) and in the coming days we expect the normal demand for the dollar largely coming from the corporates and energy sector,” said a forex trader at a tier one bank.

A stable shilling eases pressure on cost of living because Kenya remains a net importer of petroleum products largely consumed in transportation and raw materials for manufacturing sector.

A weaker currency, on the other hand, implies increased income for exporters of farm produce such as tea, horticulture and coffee who largely earn dollars and Euros as well as families who rely on remittances from relatives and friends abroad.

The Central Bank of Kenya (CBK) has the option of deploying its sizeable foreign exchange reserves to support the shilling in case of volatility. This action is, however, increasingly becoming limited as financial services the regulator keeps an eye on the external debt servicing demands that are drawn out of the same reserve basket.

Kenya’s foreign exchange reserves stood at $8.13 billion(Sh884.96billion) on November 5, the latest CBK data shows, enough to cover 4.93 months of imports which is above a statutory four months’ requirement.

Remittances, which rose 8.12 percent to $2.27 billion (Sh247.09 billion) in the January-September 2020 period compared with a year earlier, remains the Kenya’s largest source of foreign exchange in a period of Coronavirus-induced slowdown in tourist and exports earnings.

“The steady and durable remittances support a favourable shilling outlook and… the stability stance that the Kenyan currency has experienced is partially because of the remittances which have remained positive year-on-year,” NCBA Group chief economist Raphael Agung’ said on October 26.