The Central Bank of Kenya (CBK) Wednesday sold an unspecified amount of dollars directly in the money markets to support the shilling, which had weakened past the 99-units to the greenback.
At some point during trading today, the shilling had weakened to 98.95/99.05 to the dollar before the CBK intervened through sale of dollars directly to the market to stop further slide of the local unit.
The action by the CBK saw the shilling recover to close the day at 98.45/98.55, much stronger than 98.75/98.85-units the local currency closed trading on Tuesday.
The dollar is expected to strengthen globally as the Federal Reserve moves to start raising rates later in the year.
Forex analysts who spoke to Nation however, said the shilling is still vulnerable to the structural challenges in the economy and the exit of foreign investor portfolio from emerging markets due to lower returns to the high-return developed markets currently.
“Currently, there is a global portfolio re-alignment from the emerging markets, which are not doing very well. The portfolio is being re-aligned to the developed markets, which have better returns at the moment,” said a forex dealer at a commercial bank in Nairobi.
CONTINUE DECLINING
Analysts now see the shilling breaking the 100-unit level soon.
“Going forward, we expect the shilling to continue declining but at a much slower rate, breaking the 100-mark,” a forex dealer said.
Kenya’s current account deficit continues to worsen with imports growing at a much faster rate on the back of slowdown in export earnings.
Inflows from key sectors such as tea, coffee and tourism have also slowed down due low prices the commodities are fetching in the global market and the insecurity facing the tourism industry.
But not just that, but there are several signs that companies have problems with cash-flow and profits, as several major companies in sectors as retail stores, production and more have problems paying their suppliers. Some companies that are used to receive their payment within 1 to 3 month now waits 4 to 6 months to receive the payment, announced Kepsa on a resent meeting with foreign investors where they warned against giving credits.
Among other things are part of it a declining real estate market where prices now are falling for several reasons, we have before said the market will fall, and might even collapse with in a short time period. Prices for rentals to expats are already falling as a lot of foreign NGO’s, UN and other are re-posting positions to singles and not families, which now mean that where the society would have an income from whole families, now it is only from singles that uses less money. (No school children, no nanny, no driver, etc.)
Here the market for Tanzania and the growth is still staying high and even growing with a much higher percentage, and we find investors are more willing to invest in Tanzania, while investments in Kenya are on a decline. Investors we have talked with and that are considering to invest in Kenya, Uganda, or Tanzania, prefers Tanzania as country for investment, while Uganda and Kenya are side by side, simply said they say it is easier to get things through in Uganda, but there is less money, while they would rather do Kenya and the bigger market, but the extend of corruption keeps them out as it is to much, as everyone wants money, not just people in high positions but the middle and lower class as well, which makes it extremely hard for investors.
Some investors beleive that if it was not for bribery, Kenya would be much further and richer as a country, even on a higher level than South Africa.
Anticipated further weakening of the shilling comes on the back of the Central Bank of Kenya (CBK)’s decision to raise the Central Bank rate (CBR) by 1.5 percentage point to 10 per cent on June 9, to support the local currency from weakening further against the greenback.
President Uhuru Kenyatta is also yet to gazette Dr Patrick Njoroge as the CBK governor, more than a week after members of parliament ratified his nomination to head the banking sector regulator.
