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Shilling shows resilience but concerns remain over current account deficit

On a year to date basis, the shilling has depreciated against the dollar by 1.2 percent/FILE

NAIROBI, Kenya, Oct 30 – Economic experts predict a stable shilling against the dollar in the short term but have raised concerns about the current account deficit that has expanded to 6.2 percent of Gross Domestic Product from 5.3 percent of GDP same time in 2016.

Cytonn Investment analysts are of the view that the weakening of the US dollar in the global markets, and the Central Bank’s sufficient forex reserves, currently at USD 7.2 billion will stabilize the shilling in the short term.

The Kenya Shilling depreciated against the US Dollar during the last close at Sh103.7 from Sh103.6 recorded the previous week, as importers accumulated more dollar holdings due to increased political uncertainty, awaiting the presidential re-run election outcome.

On a year to date basis, the shilling has depreciated against the dollar by 1.2 percent.

“Going forward to the end of 2017, we expect inflationary pressures to be subdued given food prices are expected to stabilize on account of the ongoing rains,” analysts say.

Inflationary pressures are expected to ease in the last two months of 2017, but average 8.4 percent over the course of the year, which is above the upper bound of the government target range of 2.5 percent – 7.5 percent.

The National Treasury revised further downwards its 2017 GDP growth projection for Kenya to 5 percent from 5.5 percent previously to reflect the adverse effects of prolonged uncertainty around the electioneering period.

This follows a previous downward revision in September to 5.5 percent from 5.7 percent after an assessment of the effects of the drought that the country was facing, which spilled over beyond quarter one of ’2017.

The World Bank and IMF have also cut their 2017 Kenya GDP projections to 5.5 percent and 5.3 percent from 6 percent and 5.7 percent, respectively, citing the drought’s effect on inflation, agricultural production, and slowing private sector credit growth.

“In our view, we maintain our expectation that 2017 GDP growth will slow down and come in between 4.7 percent and 5.2 percent,” Cytonn Predicts.

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In today’s trading session, the shilling is currently trading at 103.60 against 103.80 shillings to the dollar.

CBA’s Treasury Department says the shilling traded flat against the dollar earlier today even as activity remain subdued on account of political uncertainty.

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