Shilling stabilises on easing dollar demand

The shilling gained against the dollar last week as the pressure that had seen it hit a record low of 108.03 units to the greenback eased.

The shilling opened Friday averaging 106.61 against the dollar, extending the gains that followed the record low seen on July 23. This means that the shilling gained 1.42 units or 1.3 percent last week.

Currency traders said the end-month dollar demands from merchandise and oil importers had cooled off after two weeks of raising their hard currency stock levels to match demand after the government started phased reopening of the economy.

The current exchange level is however still 5.2 percent in the negative in the year-to-date, given that the shilling opened the year averaging 101.34 units to the dollar.

The shilling had come under pressure especially after Kenya reported its first case of Covid-19 on March 13, leading to disruptions in the economy.

The fall was more pronounced since July 6 when President Uhuru Kenyatta opened up Nairobi, Mombasa and Mandera counties and announced resumption of air transport.

The CBK maintains, however, that its forex reserves of $9.35 billion or 5.67 months import cover are an adequate arsenal to deal with volatilities.

CBK Governor Patrick Njoroge said last week in a post-Monetary Policy Meeting that when the performance of the shilling and other currencies is weighed against the dollar, “we are closer to the middle.”

“This is what the market is saying and all we want to do is to minimise volatility,” said Dr Njoroge.

Foreign investor outflows have increased and CBK has used its forex reserves in a bid to support the shilling, investment bank AIB Capital noted in an end of week brief.

The head of research for Africa at Standard Bank Group Jibran Qureishi had tipped the CBK to ride on forex reserves to stabilise the shilling below 107 units.

“There is a lot of liquidity in the market and CBK has enough ammunition to sell dollars and slow down the moves we are seeing.

“I think the move is temporary and I don’t see it becoming a one-way street,” said Mr Qureishi.

Kenya is a net importer and a weak local currency to the dollar has an impact on the import bill for commodities such as oil and industrial inputs.