Shilling surges for 6th day running

The Kenyan shilling surged for the sixth straight day against the dollar at under 101.50 on healthy inflows, analysts say.

As at 2pm Wednesday, Reuters data showed the shilling at an average of 101.40, that is 101.50/30 to the dollar.

The inflows came into the banking stocks and government securities at a time of muted demand for imports.

The record diaspora remittances and aggressive mop-up of excess liquidity by the Central Bank of Kenya (CBK) through open market operations (OMO) have contributed to the rising local currency, said Nahashon Mungai, the head of Standard Investment Bank’s global markets division.

The inflows into the banking stocks have been spurred by the removal of the rate cap while foreign interest in government paper has been concentrated on the October infrastructure bond (IFB) as well as November’s vanilla bond issue.

“Inflows into banking stocks following interest rate cap repeal, record diaspora remittances, foreign interest in government papers including IFB Oct and the 10-year November, muted demand, with no heavy importation on infrastructure projects” said Mr Mungai.

International crude prices have also fallen, with orders for delivery in September next year being as low as $54 per barrel compared to nearly $60 currently.

The CBK has been active in Open Markets Operation, which has increased dollar liquidity available locally, relative to that of the Kenyan shilling that in turn has appreciated.

Mr Mungai cited the high chances of the International Monetary Fund (IMF) restoring a precautionary foreign exchange facility to Kenya now that one of the major causes (restricting movement of interest rates through a legally binding provision) of the lukewarm relations with the country has been recently removed.

“Probability of the IMF restoring the $1.5 billion (Sh150 billion) credit facility following repeal of the cap has boosted the shilling,” said Mr Mungai.

But he also warned that the local unit faced immediate threats of depreciation due to factors such as the de-risking of capital in the international markets – which effectively means higher chances of investors withdrawing funds from the emerging and frontier markets into the developed countries as well as potentially disruptive politics and the rising debt burden. “De-risking by global capital, potential political noise and heavy debt obligations are the immediate potential threats,” he said.