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Shilling hits 3-month high against the dollar

Traded at 107.89 yesterday morning

In Summary

•Last week, the shilling was threatening to slip into Sh109 margins on high demand for dollars, especially by oil importers.

•Currency traders have attributed the sudden strengthening to the relaxed dollar hedging by investor who are slowly returning to business.

The US Dollar notes/FILE
The US Dollar notes/FILE

The Kenyan shilling strengthened to a three month-high against the dollar on Monday giving respite to importers while checking inflation pressures.

The Google Currency Tracker captured the local currency at Sh107.89 few minutes past 9am before it dropped to Sh108 at noon.

Last week, the shilling was threatening to slip into Sh109 margins on high demand for dollars, especially by oil importers.

This was the highest the shilling has been since May when it started to depreciate against the greenback, which strengthened on high demand by investors seeking to store their wealth in globally accepted papers.

Currency traders have attributed the sudden strengthening to the relaxed dollar hedging by investors who are slowly returning to business after global trade restrictions to combat the spread of coronavirus that has since claimed millions.

"Investors have started to release dollars into the market as the economy picks after Covid-19 recess. We expect dollar demand to drop as minor currencies strengthen, "Derrick Memba, a money market expert told the Star on phone.

He added that diaspora remittances and export earnings from the agricultural sector will also help the country intensify its forex reserve.

Kenya is a net importer especially of food and energy and a strong shilling helps the country to cut her import bill.

A stronger shilling will help reduce pressure on the prices of imported foodstuff, machinery imports, fuel, fertiliser and other commodities.

The Central Bank of Kenya (CBK) has projected growth in diaspora remittance as the global economy slowly recovers from lockdown effects.

Speaking during the recent post-Monetary Policy Committee (MPC) , CBK governor Patrick Njoroge said the country's forex reserve which is at 5.14 months of import cover, will strengthen in the coming months on expected remittances.

Most of the remittances came from the United States where unemployment has dropped to record levels boosting job availability to foreigners.

Remittance inflows recorded a 12 per cent growth to $288.5 million (Sh31.2 billion ) in June 2020 from $258.2 million (Sh27.8 billion )in May.

The cumulative inflows also recorded a 1.5 per cent growth in the 12 months to June totaling $2.809 billion (Sh303.5 billion) compared to $2.768 billion (Sh299.1 billion ) in the 12 months to June 2019.

Inflows from the US, South Africa, and Saudi Arabia recorded the highest increases in the 12 months.

Financial experts have tipped CBK is likely to ride on forex reserves to stabilise the shilling below 107 units.