DROP

High inflation push August's diaspora inflows to a 14-months low

CBK data shows $310.5 million (Sh37.4 billion) was sent last month

In Summary
  • The inflow slightly boosted the country's dwindling forex reserve but did not have an impact on the depreciating shilling. 
  • The inflows reported in August are the lowest since June last year when the country received $306 million.
CBK Headquarters
CBK Headquarters
Image: FILE

The amount of money sent home by Kenyans working abroad dropped for the seventh consecutive month in August as high inflation muzzled disposable income.  

A report released by JP Morgan last month shows diaspora remittances have dropped in recent days globally due to rising expenditure on basic needs, leaving less to dispose of. 

According to the American multinational investment bank and financial services, diaspora remittances have fallen by 4.8 per cent globally as leading economies like the US report the highest inflation in 40 years. 

Central Bank of Kenya (CBK) data shows $310.5 million (Sh37.4 billion) was sent last month compared to $312.9 million (Sh37.7 billion) similar period last year.

The inflows reported in August are the lowest since June last year when the country received $306 million.

Diaspora inflows have been shrinking since January when the country posted a high of $338.7 million. 

The CBK nevertheless has described the remittances as strong with the inflows continuing to support the current account and the stability of the exchange rate.

In the year to date, the diaspora remittances stand at Sh322.1 billion ($2.675 billion) in eight months to August in contrast with Sh289 billion ($2.4 billion) at the same time last year.

This represents an 11.5 percent year-over-year growth in remittances.

The United States remained the largest source of remittances into Kenya accounting for 58 per cent of the flows in August.

According to CBK, the USA contributed $187 million during the month under review compared to $ 201 million similar month last year.  

The country is witnessing the highest inflation in 40 years and it is expected to worsen in the coming days as the country tightens its credit.

Its inflation is currently at 8.5 per cent with both mortgage and rest prices rising to above six per cent, the highest since the great recession of 2008. 

The Federal Reserve has already resolved to deliver another 75-basis-point interest rate hike next week and likely hold its policy rate steady for an extended period once it eventually peaks. 

If realised, that would take the policy rate to the 3-3.25 per cent target range, the highest since early 2008, before the worst of the global financial crisis. 

The inflow slightly boosted the country's dwindling forex reserve but did not have an impact on the depreciating shilling.  

According to the CBK Weekly Bulletin, the shilling dropped further against the greenback, exchanging at 120.41  on September 16, compared to 120.28 on September 13.

The shilling has been dropping against major international currencies for almost 17 months now, shedding six per cent in value. 

The country's FX reserve position remained weak in the week under review, sinking below East Africa's threshold of 4.5 months of import cover.

This year, the remittances coupled with rebounding exports have been critical in keeping Kenya’s current account deficit stable with the gap standing at 5.1 per cent of Gross Domestic Product (GDP) at the end of July according to CBK provisional data.

The usable foreign exchange reserves stood at $7.3 billion (Sh879 billion) (4.2 months of import cover) as of September 15.

''This meets the CBK’s statutory requirement to endeavor to maintain at least four months of import cover,'' CBK said. 

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