The Kenyan Shilling gained ground in the previous week against a weaker dollar, with the U.S. Federal Reserve’s 50 basis points rate cut.
- On Friday, the shilling closed at 129.18 against the greenback, 0.01% stronger than its close in the previous week.
- The marginal strengthening was partly attributed to higher dollar inflows during the week lifting the year-to-date performance to 17.4%.
- The equities market closed the week on a bullish note, signaled by the NSE All Share Index (NASI), which edged up week on week by 0.4% to close at 106.4%, taking the year to date gain to 15.7%.
On the international front, yields on Kenya’s Eurobonds decreased by an average of 79 basis points mirroring improved investor sentiments.
Kenya’s usable forex reserves increased substantially by 1.6 percent to US$7.9 billion, enough to maintain 4.1 months of import cover from US$7.7 billion the previous week. In a consecutive three weeks, foreign reserves have shot up by US$547 million with the Central Bank of Kenya having little pressure towards chipping in to manage volatility in the currency market.
The foreign reserves fall marginally above the 4 months statutory requirements albeit lower than the EAC’s convergence requirement of 4.5 months of import cover.
The US rate cut last week is bound to have ripple effects, as liquidity and business activity trigger a turnaround in the dollar’s recent trends. But it will also allow for Kenyans abroad to send more money back home, and encourage dollar inflows from other investors.
Read more about how the Fed’s 0.5% interest rate cut matters to markets like Kenya.
Kenyans Abroad Are Sending More Money Back Home
Money sent home by Kenyans living abroad increased to all time highs to hit a record US$4.3 billion. “The remittance inflows continue to support the current account and the foreign exchange market,” noted CBK in the weekly report.
Data from CBK shows diaspora remittances in the 12 months to August 2024 saw a decent 12.7% increase to US$4.6 billion compared to US$4.1 billion in the same period in 2023. The US remained the largest source of remittances to Kenya, accounting for 56% in August 2024. Other top remittances sources included Saudi Arabia, United Kingdom, Germany, Australia and the UAE.
Liquidity conditions in the Money Market tightened, with the average interbank rate rising marginally to 12.7% from 12.6% recorded a week prior, partly attributed to tax remittances outpacing government payments. The interbank rate trailed within the adjusted CBK range, with market operations remaining active.
