Analysts: Kenya shilling expected to fall in 2017

After remaining stable in 2016 and going down by a paltry 0.1 percent against the U.S. dollar, the Kenya shilling is expected to be under intense pressure in 2017, analysts have noted.

The currency hit a 15-month low at the end of last week, trading at 103.6 against the dollar following sustained demand from multinationals and oil importers. The level was last seen in October 2015, when it hit a low of 104.10.

Although Central Bank of Kenya (CBK) sold undisclosed value of dollars in its foreign exchange reserves to buttress the shilling, analysts have warned the currency would face tough times in coming months.

"The shilling would face increased pressure due to the strengthening of the dollar in the global markets after the Fed rate hike coupled with expectations that the regulator will accelerate its rate-hike cycle in 2017 as the U.S. economy is expected to do even better this year," said analysts at Cytonn, a Nairobi-based investment firm on Monday.

They further observed that the rising global oil prices do not portent good times for the shilling. A barrel of oil currently averages 54 dollars, up from below 50 dollars months back.

"There is pressure on the current account position due to increased importation bill, resulting from the recovery of global oil prices following a deal by Oil Producing and Exporting Countries to cut global oil supply."

Reduction in capital inflows into the capital markets due to uncertainty caused by the August general election and declining forex reserves, currently standing at 7 dollars, equivalent to 4.6 months of import cover, too are expected to affect the shilling.

Cytonn further projected that inflation would this year average 6.7 percent to 7.2 percent maily due to a prolonged dry weather, which is expected to persist until mid-2017 and push up food prices. Other causes include rising oil prices with ripple effects on consumer prices and increased money supply as a result of political campaigns for the August polls.