Shilling to remain at 88-90 against dollar

January 28, 2013
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This month alone, the CBK has intervened over three times by selling undisclosed amounts of dollars in the market from foreign exchange reserves/FILE
This month alone, the CBK has intervened over three times by selling undisclosed amounts of dollars in the market from foreign exchange reserves/FILE
NAIROBI, Kenya, Jan 28 – The Kenya shilling is expected to remain within the 88 to 90 bracket against the dollar in the first half of this year.

Senior Investment Manager at PineBridge Investments Edward Gitahi said despite the current modest pressure on the local unit, the Central Bank of Kenya (CBK) has enough room to manage the movement of the shilling for the next few months.

This month alone, the CBK has intervened over three times by selling undisclosed amounts of dollars in the market from foreign exchange reserves.

“I don’t think a weak currency is necessarily a bad thing because it also makes the exports more attractive. What is even more important is how that depreciation is managed so that we again don’t have a very wild fluctuation of the currency,” Gitahi said.

On the other hand, PineBridge Investments CEO Jonathan Stichbury said the forex reserves could decline if the CBK continues to use them to defend the Kenya shilling in the next six months.

By the end of last year, the forex reserves had increased to over $5 billion (Sh450 billion)

“Our view is that the Central Bank will not want to see a substantially weaker currency and will therefore resist the temptation to radically reduce interest rates in 2013. This is likely to provide fundamental support to the Kenyan shilling,” Stichbury said.

The current little pressure on the shilling is due to higher level of importation, especially raw materials, intermediate goods, machinery and equipment.

Strong growth in Diaspora remittances will also contribute in strengthening the shilling as they will help build up the forex reserves.

Kenya’s remittances have been growing strongly where average monthly Diaspora remittances have doubled in two years to over Sh9 billion per month.

“If this continues, it is likely to have a positive impact on various sectors in the economy,” Stichbury added.

On general economic outlook, the experts say this year, economic growth is expected to be above 5.5 percent, mainly due to increase in agricultural production and exports and increased investments.

“In 2013, interest rates are much lower and we expect to see increased credit growth and bank lending compared to last year which will be positive to the economy,” Stichbury predicted.

However the area of concern, they say, remains on the continued rise in the public debt which comprises government domestic and foreign borrowing.

The debt stood at Sh1.6 trillion in the last 2011/12 fiscal year.

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