12-Jun-2013
The shilling weakened yesterday on the back of oil importers buying dollars to pay for their supplies, but traders said the local currency could recover on tea exporters' inflows.
Commercial banks quoted the shilling at 85.00/20 per dollar, weaker than Monday's close of 84.85/85.05. "The marginal decline was mainly attributed to demand from the energy sector as various bought dollars," said Bank of Africa in a daily note. "Slow demand during the mid-month cycle coupled with tea dollar inflows during mid-week, the shilling should remain supported and could likely dip back below the 85.00 mark towards end of this week."
Tea is Kenya's leading foreign currency earner and is sold in the port city of Mombasa every Monday and Tuesday. Exporters typically then convert their earnings into shillings to pay farmers and cover operational expenses.
The shilling has gained 1.2 per cent so far this year. Some traders, however, predict that the shilling could depreciate gradually in coming months on the back of a widening current account deficit. Kenya's current account deficit stands at above 12 per cent of GDP, driven by increased local demand for imports, having stood above 10 percent since 2011. A Reuters poll of eight analysts and traders gave a median forecast of 88.00 shillings per dollar by the end of this year.
"The appreciation risk to our forecasts is weaker commodity prices, which would lower Kenya's import costs, narrow the large current account deficit and limit shilling weakness," said Yvonne Mhango, Sub-Saharan Africa Economist at Renaissance Capital. "This would counter the depreciation risk of loose monetary policy," referring to the 950 basis points of cuts to the central bank's key interest rate since July 2012 to 8.50 per cent.
Source:-www.the-star.co.ke
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