Kenya shilling rallies to its highest since December


Kenya shilling rallies to its highest since December

In Summary

  • On Thursday for instance, the local unit touched its highest valuation against the green buck to end the day’s trading session at Ksh.108.93.
  • The recent strengthening of the unit is nevertheless surprising to analysts and market participants who have largely held a bias for the unit’s weakening.
  • A stronger shilling is expected to cut the cost of imports while serving to trim the cost of external debt service which is largely biased towards dollar denominated repayments.
 

The Kenyan shilling is now trading at its highest rate against the United States dollar since December last year.

On Thursday for instance, the local unit touched its highest valuation against the green buck to end the day’s trading session at Ksh.108.93.

This is the shilling’s highest valuation in 2021 and signals easing pressure on the local unit which had come under pressure from major world currencies in the past year.

For instance, the shillings threatened to breach the Ksh.112 mark in early December after trading at historical lows above the Ksh.111 mark.

The local unit has subsequently steadied trading between Ksh.109.50 and Ksh.109.50 for the better part of 2021’s first quarter to the end of March.

The recent strengthening of the unit is nevertheless surprising to analysts and market participants who have largely held a bias for the unit’s weakening.

Optimism on the rebound of the macroeconomic environment this year has however served to anchor the shilling despite the prevalence of volatility from the evolving COVID-19 pandemic.

“We project the Kenya shilling to remain stable and trade within the range of between Ksh.107 and Ksh.110 against the US dollar in 2021, supported by the improving current account position,” stated analysts at Cytonn Investment.

“However, the dwindling Forex reserves may mean the government of Kenya will struggle to support the local currency when it depreciates.”

The World Bank Group further expects growth in the country to firm up in 2021 supported largely by a strong rebound in export demand.

“Kenya is projected to see solid growth in 2021 as its exports of agricultural products benefit from a pick-up in global demand and the reduced threat from locusts,” the World Bank stated in its African Pulse report published on Wednesday.

On its part, the Central Bank of Kenya (CBK) expects the local currency to find footing from expected foreign currency inflows which include Ksh.34.5 billion from the International Monetary Fund (IMF) rapid credit facility (RCF) next week.

Further, the reserve bank expects key macro fundamentals to remain solid in the year with the current account deficit as a percentage of GDP estimated at 5.2 per cent at the end of 2021.

A stronger shilling is expected to cut the cost of imports while serving to trim the cost of external debt service which is largely biased towards dollar denominated repayments.

On the inverse, a stronger local currency units serves to make local exports more expensive at the international arena.

Previously, the CBK has insisted it only intervenes to minimize volatility in its Forex exchange regime.

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Story By Kepha Muiruri
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