Excess cash flow in the local money market drove the shilling up to a high of Sh102.55 yesterday as the country edges closer to the recall of old Sh1,000 notes by October 1.
Yesterday, the shilling traded at an average Sh102.36 against the dollar up from Sh102.298 on Friday.
The shilling has been veering steadily over the past few weeks following government’s announcement of a change in Kenya's currency notes on June 1.
Central Bank has however refuted claims the expected demonitisation exercise to recall old Sh1000 notes by October 1 is pumping excess liquidity in the market as mass holders rush to beat the exchange deadline.
Instead, the regulator believes the weakening of shilling could be a result of normal high demand for the dollar by importers.
“The movement it has had over the last few weeks is not an issue,” CBK governor Patrick Njoroge said.
According to analysts at Cytonn Investments, the exchange rate is expected to remain neutral ranging between Sh101.0 and Sh104.0 through out the year.
“We expect the Kenya Shilling to remain stable with continued support from the CBK in the short term through its sufficient reserves currently at $9.13 billion (equivalent to 5.8-months of import cover),” Cytonn said in it’s economic review for the first half of the year.
The increased cash flow has resulted in a decline in the interbank lending rate currently at 2.25 per cent.
This below Kenya’s monthly inflation rate of 5.7 per cent, at just 39 per cent of the cost of living measure.
