Capital Markets

Shilling tipped to remain stable against the dollar

A shopper picks a packet of flour. Food price inflation was erratic last year. FILE PHOTO | NMG
A shopper picks a packet of flour. Food price inflation was erratic last year. FILE PHOTO | NMG 

The Kenya shilling is likely to retain its recent stability against the dollar this year, supported by the narrowing current account deficit and strong capital flows into the country, analysts at Citi have said.

The shilling was stable throughout last year against the dollar, largely helped by record inflows from Kenyans abroad and interventions by the Central Bank of Kenya (CBK) amid fears on impact of elections on the economy.

“Despite the political and policy uncertainty seen in 2017, with robust foreign exchange reserves, a narrowing current account deficit and strong capital flows into Kenya, notably from the region, the Kenyan shilling has shown significant stability,” said Citi in a new research note.

“This is unlikely to change in 2018 unless there was a more aggressive pick-up in inflation and deterioration in the fiscal position.”

The shilling kicked off with a turbulent note at the start of 2017, slipping to a 15-month low against the dollar within the first week, but it later stabilised and held firm for the rest of the year, in spite of the economic upheaval seen during the elections.

On Tuesday, commercial banks quoted the currency at an average of 103.15 to the dollar, slightly stronger from Monday’s 103.20.

Citi says although food price inflation was erratic last year, making inflation forecasting more complicated, the inflation rate would remain within the Central Bank of Kenya’s (CBK) target band early this year.

“The key for the 2018 outlook in Kenya is how quickly the country can put the tensions surrounding the 2017 presidential elections behind it,” says Citi.

Diaspora inflows fell slightly in November last year for the first time since August even as the cumulative flows in the first 11 months of the year hit a record high.

Official data shows Sh18.10 billion ($175.18 million), 5.56 per cent lower than Sh19.17 billion ($185.50 million) a month earlier, was remitted in the month that followed conclusion of the election period.