The Kenyan Shilling appreciated by 0.2 percent against the US Dollar to close the week at Kshs 106.3.
In its weekly report dated June 19, 2020, the Central Bank of Kenya (CBK) said the shilling ‘remained stable against major international and regional currencies’ during the week ending June 18.
“It exchanged at KSh 106.32 per US dollar on June 18 compared to KSh 106.60 per US dollar on June 11,” according to the CBK.
Cytonn Investments says the appreciation is attributed to low dollar demand from merchandise importers, coupled with dollar inflows from horticulture exports.
The CBK further indicated that its usable foreign exchange reserves remained adequate at USD 9,278 million (5.58 months of import cover) as at June 18.
“This meets the CBK’s statutory requirement to endeavor to maintain at least 4 months of import cover, and the EAC region’s convergence criteria of 4.5 months of import cover,” which is expected to support the shilling.
According to NCBA, the shilling remains vulnerable to weak inflows and sentiment.
“However, demand has remained thin, consistent with economic activity and may remain subdued for the period of the pandemic. The local currency has May to date been marooned in the 106 – 107 range against the US dollar.”
In the week, the market’s focus will be on the Monetary Policy Committee which will be meeting on Thursday to review the outcome of its previous policy decisions and recent economic developments, and to make a decision on the direction of the Central Bank Rate (CBR).
In the last sitting on May 27, the MPC maintained the CBR at 7.00 percent. Cytonn Analysts do not expect a change in the current policy.
“Should the MPC pursue additional rate cuts, Kenya’s financial and capital assets will become less appealing to investors on account of the lower rate of return. Consequently, the shilling will continue to depreciate on the back of increased dollar demand. As such, we believe the MPC will maintain the CBR at 7.00 percent,” they note.
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