Kenyan shilling bullish after referendum

August 9, 2010
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, NAIROBI, Kenya, Aug 9 – The increased confidence in the market following last week’s peaceful passage of the new Constitution is likely to continue shoring up the shilling in coming months.

Commercial Bank of Africa’s Senior Manager of Treasury Raphael Owino said the local currency appreciated a few days before the referendum and the rally has continued pointing to the positive sentiments that many people have in the Kenyan economy as a whole.

“Since we came back after the referendum, the shilling has gained almost Sh0.50 to Sh0.60. We all realise that confidence has gone higher because the (referendum) process itself went on smoothly and that vindicates the huge political risk profile that has been hanging on the shilling’s head since 2008,” he said referring to the economic downturn that followed the disputed 2007 general election.

In early June, the local currency touched a five-year low when it traded at Sh82.25 to the dollar mainly because of market developments in Europe which saw investors substitute their Euro denominated portfolio with dollar denominated assets.

However, optimism that the referendum process would be peaceful and the eventual outcome have seen the shilling strengthen in the last few weeks.

On Monday, data from the Central Bank of Kenya (CBK) showed that the shilling was buying at Sh79.35 and selling at Sh79.53 to the dollar as it continued to reap dividends from the confidence in the market.

The dealer projected that there is a possibility that the shilling will be trading below Sh79 to the dollar in coming weeks.

Mr Owino was however of the view that the bullish trend might be reversed in the short term as the excitement of having a new supreme law dies down. The occasional CBK dollar purchase might also see the currency weaken slightly.

“Since we have already gained about Sh2.50 pre and post referendum, there will be some slight consolidation so we may see a reversal back to the Sh80 levels in the next one or two weeks,” he predicted.

However, with the promulgation of the new Constitution that will usher in new governance structures, he remained bullish that the prospects of a strong shilling going forward would continue.

Although it is still too early to say with certainty whether the electoral structures and other systems are sound, the analyst further argued that the market would take a positive feel from the sentiments that the country can govern itself.

The economy might also reap the dividends from the passage of the new supreme law with the projected GDP forecast of between four to five percent this year likely to be surpassed.
 

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