Lender: Kenya shilling’s slide is nothing to panic over

NAIROBI: Policymakers have the ability to temper the Kenya shilling exchange rate volatility and that the economy does not exhibit signs of overheating. This assurance was given yesterday by Phumelele Mbiyo, Regional Head, Macroeconomic Research at Standard Bank, South Africa.

The bank is represented in Kenya through its subsidiary CfC Stanbic Bank. This assurance was given during a round-table discussion on the current performance of the Kenya Shilling, held in Nairobi.

By 0648 GMT, the shilling was trading at 96.63/83 to the dollar, compared with Wednesday’s close of 96.70/80.

Mbiyo said the US dollar is strong across the board owing to expectations that Fed, the US Central bank tightening is imminent while the local unit has outperformed most trading partner currencies hence no need for panic in the local forex market.

“It has been our contention that there is no evidence of overheating in the Kenyan economy. While economic growth has certainly accelerated since monetary policy was eased beginning in 2012, there has been neither a commensurate increase in import-demand nor any evidence of mounting inflation pressures,” said Mbiyo.

Standard Bank holds the view that Kenya’s economy seems broadly balanced, which suggests that the current upside spiral in Kenya Shilling exchange rate against the US dollar is neither likely to be durable, nor will it foster a lasting increase in inflation pressures.

BROADLY MAINTAINED

“Nonetheless, in the recent commentary it seems that the CBK is sufficiently worried about the pass-through to inflation so that the risks are weighted towards a tightening of the policy stance in coming months. Our appetite would improve if rates were to back up significantly or the CBK were to tighten the policy stance,” said Jibran Qureishi, an Economist at CfC Stanbic.

Throughout last year, the Kenyan shilling exchange rate rose fairly steady, registering an annualised increase of about 5 per cent.

This trend broadly persisted over the first two months of this year.

“Indeed, our initial forecast at the beginning of the year was that this same pace would be broadly maintained over the course of the year, with Shilling exchange rate against the dollar for the year at 95,” said Qureshi.