This archive report was first published on 20 December 2019.
On December 20, 2019, the Kenyan shilling reached an eight-month high, trading at 100.85 against the US dollar. This strengthening of the local currency was attributed to a decrease in import demand and increased remittances from Kenyans abroad.
According to Churchill Ogutu, a research analyst at Genghis Capital, the situation was 'a unique one from the historical time series basis.' Ogutu noted that the banking sector had witnessed the interbank rate steadily edge up, a signal that most banks were locking in their cash holdings ahead of the new year.
The healthy diaspora inflows, as a result of Kenyans sending cash home ahead of the upcoming festivities, might also have had an effect on the rally of the local currency. Recently, the local unit had been steady, supported by inflows of diaspora remittances, improved tourist receipts, and inflows of debts.
However, the shilling had faced some challenges in the past, particularly during the demonetization exercise when the old Sh1,000 notes were being withdrawn from circulation. The local unit had taken a knock following increased demand for the greenback by Kenyans who wanted to dispose of the condemned note.
Additionally, the Central Bank of Kenya's (CBK) intervention had helped the shilling regain some ground against the dollar. CBK had insisted that the move was aimed at dealing with volatility in the market.
Despite the shilling's stellar performance, a disagreement between the International Monetary Fund (IMF) and CBK on the true value of the local currency might steal the thunder. While an IMF report last year said the local currency was overstated by 17.5 per cent, CBK's report released last week put the misalignment at 2.6 per cent.
