Currencies

Shilling tipped to stabilise on dollar loan inflows

money

A man counts money. FILE PHOTO | NMG

The shilling is expected to stabilise at its current levels for the remainder of the year despite pressure from higher crude import costs, backed by hard currency inflows from government’s external concessional loans and remittances.

NCBA #ticker:NCBA analysts said in an economic briefing that they expect the exchange rate to oscillate between 107-110 units to the dollar until end of the year, avoiding volatility that characterised the shilling towards the end of 2020.

The currency has appreciated by 1.3 percent in the year-to-date to exchange at 107.80 units to the greenback, gaining from the low of 111.59 seen in December last year.

“Most of this upside has been due to restructuring of the debt that reduced public sector demand for US dollars, and broader sentiment around the public debt management,” said Faith Atiti, NCBA’s senior research economist, global markets.

“As much as we expect mild depreciation, we don’t envision volatility we saw last year. We looking broader stability with currency closing as much as we started rate at 110. We expect this year to be better for the exchange rate than it has in the last two years.”

Since the Covid-19 pandemic hit the country last year, the government has received in excess of $2 billion in cheap loans from international finance institutions such as the World Bank, the Africa Development Bank (AfDB) and the IMF.

The country has also been hitting new records in diaspora remittances, which are expected to help hold the current account deficit at its current level of 5.2 percent by December.

It is also expected to be steady on the back of expected capital investment inflows and an uptick in exports receipts as the pandemic eases in key export destination markets such as the UK.