The Kenyan shilling will remain stable and may gain in the short term as Kenyans abroad send back dollars for the holidays and support school payments in the New Year.
Banks and businesses the Central Bank of Kenya (CBK) polled in the November Market Perception Survey said adequate forex reserves, strong diaspora remittances, the resilient performance of exports and reduced demand for imports help prop up the shilling.
The CBK survey indicates that in September only 12 per cent of lenders predicted that the shilling would strengthen but in November 40.5 per cent were convinced of a stronger shilling, which was exchanging at an average of 101.60 to the dollar yesterday.
They also attributed the bullish stance on dollar flow from tourism and money chasing Kenyan financial assets following the lifting of the rate cap in November.
“The expected dollar inflows from investors following the repeal of interest caps, projected stable oil prices, stable inflation, confidence among investors, narrower current account deficit, and a stable political environment are reasons for the expected stability and/or strengthening of the shilling,” CBK said in the report.
The Kenya securities market, which for the past four years has suffered from risk-averse foreigners selling off frontier markets, low corporate earnings and rate cap handicap seems to be reversing on anticipation of stronger growth going forward.
Egyptian investment firm EFG Hermes Holding said foreigners made an intermittent return to Kenya in 2019 after strong sell-offs in 2018, and much of 2017.
“Year to date foreign buying was at $9.65 million as of October 2019, and we estimate that foreign portfolio investors own 15 per cent of market cap, still below historical highs of 30 per cent,” the firm said.
A stronger shilling will be good for Kenya’s imports since the country a net importer will need fewer shillings to buy a unit of the greenback, it will, however, be bad for exports as local producers will earn less than if the currency lost ground.
However, Kenya’s biggest currency concern is the cost of its huge dollar debt from commercial banks whose size and sustainability is directly tied to the value of the shilling.
This has created a contention on valuation with the International Monetary Fund accusing the CBK of managing the currency that was 18 per cent overvalued.