The prediction by banks that regularly deal in foreign exchange is in line with the recent weakening bias of the shilling, which in October alone shed nearly one per cent of its value against the dollar after a strong performance in the first three quarters of the year.
The Kenyan shilling will weaken in the next 12 months, bankers said citing pressure from ongoing rise in import bill in line with continuing increase in crude prices and the knock-on effect of an improving economy that is expected to spur consumer demand.
The Central Bank of Kenya (CBK) says in its September 2018 markets perceptions survey that three quarters (75 per cent) of commercial banks polled expect the shilling to weaken in the 12 months to August 2019, as did 60 per cent of non-bank private sector firms polled.
“Respondents attributed this to expectation of increased imports with a pick-up in the economy, increase in international crude oil prices as well as US trade sanctions against Iran - a major market for Kenyan tea,” said the CBK.
“(Other factors are) uncertainties over the resolution of the UKs Brexit impasse and possible pressure from upcoming November dividend payments in the telecommunications sector.”
The prediction by banks that regularly deal in foreign exchange is in line with the recent weakening bias of the shilling, which in October alone shed nearly one per cent of its value against the dollar after a strong performance in the first three quarters of the year.
The shilling last Thursday clawed back some lost ground closing at 102.05 to the dollar to stand at a nine-month low.
Commercial banks quoted the shilling at an average of 101.78 to the dollar Friday afternoon, having picked some intraday gains indicating that the regulator may have intervened during the day by selling dollars. The CBK also mopped up Sh5 billion from the market on the same day.
Respondents in the CBK survey also pointed at short term pressure on the currency arising from concerns over the higher foreign debt servicing obligations.
The spotlight on foreign debt rose this week following revelations by the Treasury that it will once again turn to the Eurobond market for up to Sh250 billion to finance the budget deficit.
The amount, which was already budgeted for, is causing market jitters because of Kenya’s inability to access external loans on concessional terms, given that Eurobonds are charged at commercial loan rates that went as high as eight per cent for the last issue in February.
On the other hand, 23 per cent of bankers said the rate will remain stable, and two per cent predict a strengthening of the shilling.
They cited support from the strong foreign exchange reserves, diaspora remittances, strong export flows from tea and horticulture, higher inflows from tourism and lower food imports due to improved domestic production following favourable weather conditions.
CBK polled a total of 377 firms, comprising of 40 banks, 13 micro-finance banks, and 324 non-bank private firms including 45 hotels, with a response rate of 67 per cent.
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Note: The results are not exact but very close to the actual.
