Shilling at 5-week high on Christmas inflows

The shilling strengthened to a five-week high against the US dollar Wednesday, buoyed by reduced dollar demand ahead of the festive period and tight liquidity in the money market.

Traders said inflows remitted by Kenyans living abroad have also gone up—as is the norm in December.

Commercial banks quoted the currency at an average of 102.07 by 3pm Wednesday, compared to 102.38 at close of trading on Tuesday and 102.50 on Monday.

“Corporate dollar sellers raided the local foreign exchange market with large ticket deals. Waning dollar demand also helped the shilling appreciate. Looking ahead, the unit may continue to be supported by foreign currency inflows witnessed in the recent past,” said Commercial Bank of Africa in a currency market note.

Rising diaspora remittances have provided major support for the shilling this year.

In the 10 months to October 2018, total remittances went up 42 percent to $2.23 billion (Sh228 billion) compared to the same period in 2017 when they stood at $1.57 billion (Sh160.3 billion).

The remittances have in the past gone up significantly in December compared to the average over the other 11 months of the year.

Last year, December remittances stood at Sh20.8 billion, against a monthly average of Sh16.2 billion between January and November.

The same trend was seen in 2016, when the December remittances stood at Sh16.4 billion against an average of Sh14 billion for the rest of the year.

Analysts at Commercial Bank of Africa also say the shilling will be buoyed further by inflows from tourism during the festive period.

In recent days, the money market has also been tight, leading to the interbank rate rising to a three-year high of 11.3 per cent last Friday, although it has eased back to 7.87 per cent after an injection of shillings through a maturing two-year bond.