The Kenya shilling maintained a 20-month high against the US dollar, its strongest level since early June 2016 in open of trading Friday morning with commercial banks quoting it at 100.80 same level as Thursday’s close.
The strong performance of the local currency is being supported by inflows from portfolio investors participating in the stock market and secondary market for government bonds as well as increased horticultural earnings ahead of Wednesday’s Valentine’s Day.
The bounce in the local currency has caught many by surprise with economic analysts as early as last month having predicted that the shilling may weaken to a low of up to 106 to the dollar in the course of the year.
Central bank Governor Dr. Patrick Njoroge has however maintained that the regulator has sufficient foreign exchange reserves currently at 717.91 billion shillings to iron out any volatility on a need basis.
This is an equivalent of 4.75 months of import cover, which is above the statutory requirement for four months imports cushion.
With strong dollars inflows targeting the infrastructure bond and a bullish general market sentiment, the Kenyan shilling has so far gained 2.16 per cent against the US currency since the beginning of the year.
And during trading Friday morning, commercial banks quoted the shilling at 100.80 to the US dollar same level as yesterday’s closing average, which is a 20 month high against the US dollar.
Increased horticultural earnings ahead of Wednesday’s Saint Valentine’s Day and foreign investments in government securities have further contributed to the upturn in the shilling’s fortunes.
What this means is that for a net importer country such as Kenya, a strengthening currency may result in lower consumer prices while exporters will feel the pinch as earnings will dip.
According to currency traders, a subdued dollar demand as well as a weakening of the dollar against major international currencies has also been contributing to the recent rally of the Kenyan shilling against the greenback.