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Expiry of IMF’s Sh99b stand-by loan hits market

Zachary Ochuodho@zachuodho

Anxiety from traders and banks led to a 0.5 per cent depreciation of the shilling against US dollar after it emerged the country would not renew the IMF’s $989 million (Sh99 billion) standby credit facility.

According to the Central Bank indicative rates on the Kenyan shilling traded at Sh101.20/30 against the US dollar on Friday compared to 100.65/85 registered earlier on Monday.

The drop of the shilling against the US dollar was the biggest in the last three months in the recent past. At the same time, yields on Eurobonds due in 2024 were trading at 7.591 per cent compared to 7.4 per cent from the previous week.

This comes against the backdrop  of Kenya’s foreign exchange reserves dropping to $8.56 billion  in the past four months. Statistics from Central Bank of Kenya show that the country’s reserves dropped from $9.5 billion in April to $8.56 billion last week.

Maurice Oduor, Investments Manager at Cytonn Investments  Management Ltd said during the week, the Kenya shilling depreciated by 0.5 per cent against the US dollar to close at Sh101.2, from Sh100.7 the previous week, mainly driven by increased dollar demand from banks and importers over uncertainty regarding an International Monetary Fund stand-by arrangement.

Despite the depreciation of the Kenya shilling, he predicted that it would remain stable against the dollar in the short term despite the expiry of the IMF standby precautionary facility.

“The narrowing of the current account deficit to 5.8 per cent in the 12 months to June, from 6.3 per cent in March, due to improved agriculture exports and lower capital goods imports and stronger inflows from coffee, tea, and horticulture, which increased by 10.8 per cent during the month of May to Sh24.3 billion from Sh21.9 billion in April are expected to stabilise the shilling,” he said.

Other issues expected to stabilise the shilling against the dollar include improvement of the diaspora remittances and the high forex reserves, which currently stands at $8.5 billion, equivalent to 5.7 months of import cover.

Head of Corporate Finance and Advisory at ABC Capital Ltd. Johnson Nderi argued that the unprecedented depreciation of the shilling may have been due to the rush by traders and banks to buy dollars before it could strengthen against the Kenya shilling.

He said a prompt action by Central Bank of Kenya to stabilise the shilling saved it from depreciating further by pumping in dollars into the market after it realised the shilling had weakened because Kenya was not willing to extend the IMF standby facility.

However, at the Nairobi Securities Exchange (NSE), there was a mixed reaction. All the stock indices dropped in the week, except for the equity turnover, which increased by 118 per cent to Sh576.37 million.

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