The Kenyan shilling strengthened against the dollar to close at its highest level in four years on Thursday, buoyed by increased hard currency inflows and a drop in demand for imports, traders said.
On Thursday at 1330 GMT close of trade, the shilling traded at 99.60/80 per dollar, a level it last traded at in March 2015. It has been stuck tantalisingly close to breaking the 100 level in the past two months before the move in Thursday’s session.
“The shilling is strengthening because flows are not getting absorbed by demand,” said a trader from one commercial bank.
There hasn’t been much demand for dollars by importers, offering further momentum to the currency, a second currency trader at another commercial bank said.
The currency of the East African nation is one of the best performers against the dollar in Africa this year, Refinitiv data showed.
Remittances, hard currencies sent abroad by Kenyans living abroad, surged to record highs last year, in step with earnings from the tourism sector, which also soared on the back of increased arrivals.
The current account deficit narrowed to 5.1 percent of GDP in the 12 months to last November from 6.5 percent a year earlier, the central bank’s data showed.
Import requirements rose as the government built a modern railway between Nairobi and the port of Mombasa, but they have since tapered off after the construction of the line was completed in 2017.
Expansions of private sector activity fell to its slowest pace in 15 months in February, the Markit Stanbic Bank Kenya Purchasing Managers’ Index (PMI) showed on Tuesday, further pointing to the squeeze in demand for imports.