Shilling opens week on slow footing against US dollar

The shilling yesterday came under pressure as the deadline for withdrawal of the old Sh1,000 note nears.

By the close of business, the local currency was trading at Sh103.8 against the US dollar, defying analysts hopes of a resurgence from last week’s poor show. This was slightly better than Friday’s close of 103.85/104.05 against the greenback.

In the last two weeks, the local unit has lost ground against the dollar, with analysts citing increased liquidity as well as a decline in remittances from Kenyans living and working abroad.

The diaspora remittances in the last one year have been critical in shoring up the shilling. 

Diaspora remittances, which have had an impressive record in the past 12 months, have also begun to decline as the amnesty period given to Kenyans who had stashed money abroad without paying taxes came to an end.

In July, the country received Sh22.4 billion from Kenyans in the diaspora, which was Sh7.4 billion less than what was received in June.  There has also not been a bump in the growth of export earnings and tourism receipts, the other vital sources of foreign exchange reserves. 

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As a result, foreign reserves have in the last two weeks declined by Sh17.3 billion as the Central Bank of Kenya (CBK) moves to shield the local unit from pressure as a result of increased liquidity.

Some analysts have linked this to CBK’s efforts to prevent further slide of the local currency through open market operations.  Reuters last Thursattributed the slide to surging dollar demand from the energy and manufacturing sectors and excess liquidity.

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Sh1000 noteCentral Bank of Kenya