Shilling hits new high against dollar ahead of Valentine’s Day – VIDEO
The shilling touched a 20-month high against the US dollar yesterday, largely supported by increased horticultural earnings ahead of Tuesday’s Valentine’s Day and foreign investments in government securities.
The currency was exchanging at 100.72 units at 12.09pm — its strongest level since early June 2016 — having gained slightly from opening levels of 100.91/101.11 units against the dollar.
“There have been strong flows targeting the infrastructure bond and the general market sentiment is bullish on the shilling,” Raphael Agung’, head of treasury at Commercial Bank of Africa, said.
The shilling has gained 2.16 per cent against the US currency since the beginning of the year.
The Kenyan unit has this year seen a steady run against the greenback.
It emerged as one of the most stable currencies in sub-Saharan Africa (SSA) in 2017 after shedding a marginal 0.66 per cent.
“The shilling has been an alpha SSA currency in a world of high beta for quite a while now.
“The recent bounce to a 20-month high has certainly caught many off-guard,” Aly-Khan Satchu, the chief executive of Nairobi-based data vendor Rich Management, said.
The benchmark Brent crude yesterday dropped 0.44 per cent to $65.07 a barrel, which is good news for the Kenya economy which runs on imported fuel.
For a net importer country such as Kenya, a strengthening currency may result in lower consumer prices while exporters feel the pinch as earnings in shillings dip.
“The Central Bank of Kenya’s FX operations are simply off the charts, especially when you consider we have a freely convertible currency which is something of a rarity in SSA these days,” Mr Satchu said.
The CBK has sufficient foreign exchange reserves that stood at $7.108 billion (Sh717.91 billion) last Thursday, to iron out any volatility of the shilling on need-basis.
That is the equivalent of 4.75 months of import cover, which is above the statutory requirement for four months imports cushion.
Some forecasts see the shilling trading below 100 units later this year, but Agung’ believes this may take time.
“If that’s the direction it is going, I think it will be a gradual move.”
“Every indication is not pointing to that but trading in currency can go either direction because it should be the stabilising force,” he said.