Kenya shilling remains resilient despite terrorist attacks

NAIROBI, KENYA: The Kenya Shilling continues to exhibit noteworthy resilience despite the recent terror attacks, which have toppled the Interior minister and the Inspector General of Police.

“The Shilling can be described as the ‘Teflon’ Shilling. Whilst just over 5 per cent lower year-to-date versus the dollar, the Shilling is at scratch for the year.  It has seriously outperformed its African peers and interestingly is outperforming petro currencies like the Naira and the Kwanza, which is a signal that traders appreciate the sharply reduced monthly hard currency oil Bill is going to give relief,” said Aly Khan Satchu, an independent analyst.

He added that it is also worth considering that the dollar is emerging from a long entrenched disequilibrium and that it could push higher worldwide.

Following the recent terror attacks in Northern Kenya towns of Mandera and Wajir, the Kenyan shilling stayed close to a three-year low Wednesday. This is after the attacks spooked the local currency market with commercial banks posting the shilling at Sh90.20 buying and Sh90.40 selling against the US dollar. On Tuesday, the Shilling fell to Sh90.30 buying and Sh90.40 against the US dollar after Al-Shabaab militants from Somalia attacked a quarry in Mandera and killed 36 workers.

Frequent cases of insecurity especially in the coastal region saw Western countries issue travel advisories to their citizens, which has scared tourists off Kenya. This has resulted in reduction in foreign currency inflows, piling pressure on the shilling.

The latest attack, which followed another one in the area 10 days ago in which 28 people were killed, has cast a shadow over tourism during the Christmas period, the peak period for the industry.

PRESSURE ON THE SHILLING

On the flip side, Kenya’s economy has begun to experience reduced inflationary pressure although the cost of credit still remains high. “GDP growth has been moderate but lower than expected rains and delays in launching large infrastructure projects will likely put pressure on growth numbers going forward,” said Eric Musau, an analyst at Standard Investment Bank.

Kenya’s exports have been doing badly on the international market, including tea prices whose prices are high but unmatched by Kenya’s low volumes.

“My key concern in agriculture is in relation to the Economic Partnership Agreements, which are posing challenges for exports both in terms of more detailed documentation and higher tariff,” he said.

Tourism earnings are also a concern, with huge swathes of the Coast region being quiet.

Musau adds that tea prices are further edging lower, putting pressure on the Shilling. The only balancing act is that the Central Bank of Kenya has boosted reserves to cushion the economy.