Shilling expected to strengthen on US rates cut - analysts
Kenyan currency notes of different denominations.
What you need to know:
- The shilling was trading at a mean of Sh129 against the US dollar on Friday.
- A strong shilling is highly beneficial to the economy, as it lowers the cost of imports.
The Kenyan shilling has been tipped to strengthen against the US dollar due to an expected cut of interest rates by the US Federal Reserve.
Analysts have also tipped the lower rates to boost foreign investor participation at the Nairobi Securities Exchange (NSE), which could drive up stock prices and benefit investors.
“The US Federal Reserve is looking to cut interest rates in September. This will lead to a sell-off of dollars. Kenyan investors can anticipate a stronger shilling,” said Dennis Mwenga, a markets analyst at HFM Investments Limited.
The brokerage firm provides a platform for investors who want to trade in global financial markets instruments such as foreign exchange, commodities, government securities and stocks on their own.
Strengthening of Kenyan shilling
Mr Mwenga was speaking in Nairobi on Friday during an analysis of the US Non-Farm Payrolls (NFP) monthly report. The report reveals the State of the US jobs market, and is often indicative of global trends.
However, Mr Mwenga said the strengthening of the Kenyan shilling will also depend on other factors that affect its value such as geopolitical tensions, import pressures, remittance inflows and debt pressures.
Dennis Mwenga, market analyst at HFM Investment Limited alongside Yvette Ondachi, East Africa Head for Partnership and Sales at Sinapis.
“The question in the mind of investors right now is the direction that US interest rates is going to take and sectors that will be affected by lower rates either positively or negatively,” said Mr Mwenga.
The Kenya shilling has strengthened significantly this year after the country refinanced its $2 billion Eurobond, easing fears of investors.
Country’s debt burden
The shilling was trading at a mean of Sh129 against the US dollar on Friday, according to the Central Bank of Kenya (CBK).
This is a significant improvement from a record low of more than Sh162 against the green back in January.
A strong shilling is highly beneficial to the economy, as it lowers the cost of imports, resulting in lower cost of goods.
This is especially key, as Kenya is a net importer of goods, mainly food, motor vehicles, equipment and machinery, electronics, clothing, steel, fuel, pharmaceuticals among others.
It also reduces the country’s debt burden, as Kenya’s external debt is denominated in foreign currencies including the US dollar, Euros, Sterling Pounds, Yuan and Yen.
