The Central Bank of Kenya (CBK) quoted the Kenya Shilling at an indicative mean rate of KSh 100.62 against the US dollar when markets opened this morning.
This is a slight drop from a mean rate of KSh 100.55 quoted by commercial banks on Friday last week.
A fortnight ago, on 29thJanuary, 2020, the Kenya Shilling was quoted at a mean of KSh100.87 against the US dollar.
There are sharp differences in opinion among financial analysts. Some analysts describe the current strengthening of the Kenya Shilling as ‘artificial’ and a short-term bleep, not driven by any fundamentals.
A local economist argues that the local unit is supported by remittances, presented at US $ 2.4 billion per year. He also attributes the strong Shilling to a drop in oil prices since the start of the year.
But Reginald Kadzutu, Head of Retail at Zamara differs in his argument. He describes the current trend in the forex market as temporary and will change in the long term.
“There is a twin deficit of both current and financial account with more outflows than inflows when one looks at the whole picture and not just remittances. The Shilling is weaker against the US dollar compared to its peers while the CBK forex reserves are supported by the Euro bond, funds that have been borrowed,” said Reginald Kadzutu.
Investment analysts maintain that the Kenya Shilling has remained stable owing to the high level of forex reserves, equivalent to 5.2 months of import cover and the narrowing current account deficit.
During this season, there has also been a lot of foreign demand for horticulture products, with analysts attributing the strong shilling to this.
“The Kenya Shilling strengthened against major international and regional currencies during the week ending February 6, reflecting inflows to the corporate sector. It exchanged at Sh100.39 per US Dollar on February 6 compared to Sh100.75 on January 30,” the latest CBK weekly bulletin said.