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Shilling now hits new high against the greenback

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The shilling has gained 0.6 per cent in three weeks. FILE PHOTO | NMG

The Kenyan shilling touched an 11-month high to the dollar on Tuesday as investor portfolio inflows coupled with exporter inflows offset corporate demand for the greenback.

The shilling touched 102.50 to the dollar in early trading, Reuters data showed, the first time it has risen to that level since March 2017, before settling at an average of 102.60/80 in mid-afternoon. It had closed at 102.70/90 on Monday.

It remains to be seen whether the gains will hold, but a stronger shilling should ease exchange rates costs for importers and filter down in the form of lower cost of goods for consumers.

Exporters could on the other hand feel the pinch as their dollar earnings translate into fewer shillings on conversion.

This would be unwelcome news for exporting manufacturers, coming out of a tough 2017.

Currency traders attributed the strengthening of the shilling in the past week to dollar inflows from foreign investors chasing the Sh40 billion January infrastructure bond, which comes with an attractive tax free coupon of 12.5 per cent. Sale of the bond closed on Tuesday.

“In the past week or so we have seen some strengthening, because of a lot of inflows from exporters and some of the investors who want to benefit from the infrastructure bond. This has had the impact of strengthening the currency,” said Central Bank of Kenya governor Patrick Njoroge during an MPC briefing on Tuesday.

Dr Njoroge, however, added that the CBK will keep an eye on the market to iron out any volatility – a mandate it executes by selling dollars to the market in case of irregular strengthening or buying dollars if the shilling shows rapid slide.

READ: Shilling hits new high of below 103 units to dollar

The shilling opened the year at an average of 103.30 units to the dollar, meaning that it has gained 0.6 per cent in the last three weeks.

The Kenyan currency has also gained from tight liquidity in the money market, which has seen some of the lenders reduce their dollar holdings as they build up their local currency position.

Besides, a weakening of the US dollar against the world’s major currencies, partly due to the US government shutdown over the weekend also raised concerns in global markets leading to the shilling’s gains.

“On Monday, the US House of Representatives agreed and passed a short-term measure to fund the federal government through February 8, ending a three-day government shutdown. The deal, however, did little to spur up the greenback among its peers,” said Commercial Bank of Africa in a forex market note.

Going forward, analysts expect that the shilling will continue to be range bound against the dollar, especially if higher oil prices keep pushing up the import bill and the US keeps raising their interest rates which tends to strengthen the dollar globally.

Analysts at Dyer & Blair Investment Bank say in the firm’s macroeconomic outlook for the year that the shilling could slide to the 104-105 level by the third quarter of the year, while NIC Securities sees it holding at a tighter range of 102-103 for the year.

: nation.co.ke

 

 

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