The Kenya Shilling was quoted at a mean rate of 108.7882 against the US Dollar when forex markets opened today, 24th December 2020.
The Central Bank of Kenya (CBK) indicative rates also showed the Kenya Shilling buying at 108.6882 and selling at KSh 108.8882 against the greenback. This is the Shilling’s strongest position in three months since October 14th, 2020, when it exchanged at 108.56 against the US$.
According to figures extrapolated from Trading Economics global macro models and analysts’ expectations, the Kenyan Shilling is expected to trade at 108.86 by the end of this quarter.
“Looking forward, we estimate it to trade at 109.79 in 12 months time,” said Trading Economics in its forecast.
Kenya Shilling Lowest Level Against US$
Historical data shows that the Kenya Shilling slid against the US$ to its lowest level to an all-time high of 111.68 this month. Over the past two months, the Kenya Shilling has been on a downward spiral to hit past the KSh110 and KSh111 confidence levels.
This prompted intervention from the Central Bank of Kenya (CBK) through the selling of more dollars and mopping up excess liquidity through the REPO market.
Analysts View on Kenya Shilling
Analysts attribute a strengthening Shilling to several factors, including a weakening US dollar and CBK interventions to salvage the local unit. Opinion is still divided on whether the local unit’s current strength will hold in the long run.
“We have to wait and see if forex reserves have increased or reduced. Anything short of this can only be described as currency manipulation,” said Reginald Kadzutu, Head of Retail at Zamara.
A section from the business community views the present strengthening of Kenya Shilling as having little or nothing to do with critical fundamentals.
“I think this is more of market sentiment, arising from restoration of pre-covid tax measures that have been passed by Parliament. Otherwise, the reality is that Kenya’s import bill still exceeds proceeds from exports,” said Steve Mutoro, Secretary General-Consumers Federation of Kenya (COFEK).
He warns that Kenya Shilling’s strength is only temporary and that it could weaken further in January 2021 when the full impact of mounting public debt repayments and new tax measures kick in.
“We have yet to see any measures for business to access cheaper credit. The SME guaranteed loans are also unlikely to impact the Shilling. We have never witnessed such as the clash between monetary and fiscal policies like now,” said Mutoro.
CBK Forex Reserves
CBK’s usable forex reserves have been falling from $7,928 Million on 19th November 2020 to $7837 Million as of 17th December, 2020.
The average interbank rate was 5.75 per cent on December 17 compared to 4.25 per cent on December 10, signalling a tightening in the liquidity market.
Available figures indicate that the Kenya Shilling has lost 7.3% of its value against the US $ on a year-to-date (YTD) basis.