Remittance inflows and offshore investors keen on buying government bonds has helped stabilise the shilling over the past two months.
According to the Central Bank of Kenya, commercial banks quoted the shilling against the dollar at an average of 100.57 yesterday, a slight decrease from a closing average of 100.55 recorded last Friday .
The shilling has been strengthening against the green buck since the beginning of the year. On January 1, the shilling traded at 100.74 against the US currency after trading above 100 margin in 2019.
“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 CBK weekly bulletin said.
Financial analyst Aly Khan Satchu said the shilling strengthening against the dollar is noteworthy given how muscular the dollar has been overall since the onset of the Corona Virus.
Satchu said the shilling is surfing higher on a trifecta of positive developments.
“Firstly, remittances running at $2.4b a year have beefed up the country’s forex position,” he said.
According to the World Bank, remittances contributed a 2.9 per cent to the country’s GDP.
Kenyans in the diaspora sent home Sh285 billion($2855 million) in 2019 recording a 10-year high, World bank data shows.
The remittances in the country have risen to become the biggest source of foreign exchange.
According to the Kenya Diaspora Alliance (KDA), citizens living and working abroad have the potential to invest more into the country’s economy.
Satchu also attributed the strong shilling to the 17 per cent drop in oil prices since the start of the year as oil remains our biggest single expense item.
“There is an obvious inverse correlation between the price of oil and value of the shilling,” he said.
He is also said that this is the right time for Kenya can float another Eurobond on the shilling strength.
Foreign exchange reserves remained adequate at $8,510 million (5.17 months of import cover) as at February 6.
The money market was liquid during the week ending February 6, largely supported by government payments.
Even so, experts are divided on the shilling strength with some accusing CBK of managing it.
Last year, the International Monetary Fund(IMF) said CBK was managing the shilling by propping it up using forex reserves, concealing it’s true value against other currencies, especially US dollar.
The global lender indicated that the shilling may be overvalued by up to 17.5 per cent.