Not too long ago, we put up an article regarding the strengthening of Kenya’s currency, against the US dollar. Now, the Kenyan shilling gained even more ground against the dollar on Thursday 7th of March 2019, helping it hit a three-and-a-half-year record high.
It traded at an average of Sh99.70 per dollar, a feat last achieved in July 2015. This is a far cry from the Sh100.03 to a dollar rate, the previous day and a major improvement on the 99.85 KSH to the dollar rate, from the week before.
The rise in value is due to the low demand for the dollar by importers. A currency trader with a Kenyan commercial bank told Reuters, “The shilling is strengthening because flows are not getting absorbed by demand.”
The local unit (KSH) has been threatening to breach the Sh100 mark for the past two months, and has gained Sh2.50 to the dollar since the start of the year.
This development, will most definitely ease pressure on the cost of imported commodities for an economy that imports good worth nearly Sh2 trillion with petrol and industrial machinery coming top.
Exporters of goods like flowers, tea and coffee will feel the pinch of reduced earnings once they convert their dollar sales to Kenya shilling.
Remittances from Kenyans living abroad were at their highest level as they have been sending in significantly higher amounts to Kenya. In 2018, these remittances, hit a record Sh270 billion ($2.7 billion). The foreign income from the tourism sector, also went up. Those developments, have helped the Kenyan shilling amid flat export growth. In a nutshell, the high supply of foreign currency ensured that the shilling remained strong.
Other than the dollar inflows from exports and remittances however, there has also been an increase in the number of investors looking at the infrastructure bond currently available for sale.
The demand side has been quiet as buyers adopt a waiting stance anticipating the exchange rate will go lower,” said a dealer at a commercial bank (according to Business Daily Africa).
The kenya shilling’s continuous strengthening against the US dollar in the past two months, has raised optimism that the gains made so far on the greenback will hold.
Kenyan consumers are also already seeing a positive impact on the cost of imported goods.
Fuel prices have come down significantly in the last two review cycles partly as a result of the strengthening shilling and also with the fall in global crude prices in December and January. The stronger shilling further lowers the real cost of importing the commodity for oil marketers who buy dollars in the local market to make their payments.
Other beneficiaries of the currency gain include vehicle importers, who also contribute a significant share of dollar demand when buying vehicles from abroad. Manufacturers who depend on imported raw materials also benefit from lower input costs on their dollar payments to their external suppliers.
But while a strong kenyan shilling is beneficial to importers and the government’s debt repayment plan, it hurts Kenyan exporters. This is because the price of their goods and services will all experience an increase.
Global lender Citi last week, reported that the Kenyan shilling is overvalued and projected that it will end the year at 108.9 against the US dollar.
Time will tell whether or not that projection holds water.
