NAIROBI, Kenya, Mar 7 – The Kenya shilling is expected to remain stable in the medium term, according to economic experts.
The shilling strengthened by 0.78 percent against the dollar in February, closing at 101.6 compared to 102.4 at the end of January and on a year-to-date basis it has appreciated by 0.6 percent against the dollar.
Cytonn Investments attributes the appreciation to large forex reserves with 4.6 months import cover as well as current low oil prices which have eased up the country’s current account deficit.
Other factors include growth in exports that have recorded levels of Sh581.billion in 2015, a 9.4 percent increment from Sh531.2 billion in 2014 further supporting the trade balance, which improved from 10.4 percent of Gross Domestic Product in 2014 to 8.9 percent of GDP in 2015.
“Also, willingness of the IMF to continue supporting the country by extending the USD 688 million (Sh69 billion) facility. We expect the shilling to remain relatively stable given the above factors,” said the investment firm.
The firm also expects inflation to continue dropping, projecting it to come in at 6.5 percent for the month of March 2016 supported by the low fuel prices.
“For the full year, we expect inflation to be within the CBK range of 2.5 percent to 7.5 percent,” the firm states.
The inflation rate declined to 6.8 percent for the month of February 2016 from 7.8 percent in January 2016 as the Energy Regulatory Commission slashed petrol, diesel and kerosene prices by an average of Sh2.1, Sh8.8 and Sh6.5 per litre, respectively.
This led to a decline in prices of the various inflation basket components where food and non-alcoholic beverages prices declined by 0.4 percent, transport prices by 1.6 percent and housing, water and electricity by 1.8 percent.
On his part CBA Senior Treasury dealer John Njenga says the strengthening of the Kenya shilling is as a result of no demand for the dollar.
“Oil prices have gone down which has significantly reduced which has lowered imports, on the other hand this is also an indication that the economy could be slowing down, steal companies and other big importers are not importing like the way they used to import,” Njenga told Capital FM Business.
He also sees the inflation rate continue to drop, projecting it to reach six percent in the next two months.