Shilling moves to three-month high after polls

ShillingThe shilling climbed up to a three-month high against the dollar on Tuesday, as the money market re-opened after the General Election on the 4th March.

Dealers at KCB and Bank of Africa said that the shilling traded in the range between 85.30 units and 85.55 units against the dollar.

Trading at an average of 85.35 units to the dollar, the currency had last traded at these levels on November 21, 2012. Tuesday’s rate showed a gain from 86.25 units listed on Friday.

Jeremiah Kendagor, head of trading at KCB, stated that the shilling had become stronger because of the peaceful poll. He hoped that the exchange rate echoed expectations of a peaceful poll outcome.

Mr Kendagor also said that they expected the same trend to continue for the coming days and the stronger shilling displayed that it was an opportune time for those who wanted dollars because they were cheaper.

Data from Thomson Reuters revealed that the bid and ask rates were coursing at 85.25 and 85.45 to the dollar. The data showed that it was trading at 86.10 units at mid-day on Tuesday at its lowest.

Peter Mutuku, head of trading at Bank of Africa Kenya said that business was not yet back totally as many people were still waiting to resume work and they expected the demand to rise once business resumed.

He further said that he had expected that the reaction to the results of the presidential poll would determine the future exchange rate. He stated that if they had a composed and quiet reaction to the poll results, the shilling would continue to strengthen even if they had a higher demand for dollars.

Other analysts said that the shilling remained vulnerable to external shocks for the high level of the current account deficit. The shortfall, which was, now, at 9-10 per cent of the gross domestic product (GDP), was created by the huge import value relative to exports.

The shilling could experience slight weakness due to current account weakness and budget deficit according to Citi Global Market.

Citi report dated February 28, 2013 said that once the election was over, it would go on weakening marginally due to the large current account deficit and the slow rate in controlling the fiscal shortfall.

Last December, Kenya exported only KSh. 40.15 billion worth of goods and imported KSh. 117.06 billion which revealed the wide gap that had put pressure on the local unit.

The budget deficit had remained between 6.5 and 7.5 per cent of the GDP in the last two years as the country battled to finance the large government spending for infrastructure, as well as free primary and secondary education. This had occurred against revenue shortfall as the Kenya Revenue Authority had not managed to take in the targeted tax collections.

In the first 6 months of the financial year, tax collections fell below the targeted amount by more than KSh. 30 billion and consequently the government increased domestic borrowing by KSh. 32 billion to close the deficit by last December.

Citi Global Markets had foretold that the Kenyan shilling would totter against the back ground of rising political tensions as the country got closer to the polls, and more so with the easing of monetary policy by the Central Bank of Kenya.

Image courtesy: FreeDigitalPhotos.net

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