The shilling rallied Tuesday to levels last seen immediately after the August 8 election on the back of banks cutting back on their long position by selling hard currencies as calm returned to local markets.
The shilling traded at Sh102.95/103.05 to the dollar Tuesday, slightly firmer than the Sh103.05/25 it closed at in the previous session.
Traders said the currency was benefiting from good fundamentals with remittances from Kenyan’s living abroad hitting a new record-high last month and a hawk-eyed central bank cushioned by deep foreign exchange reserves.
“We are seeing banks unwinding their net long dollar positions which has led to good dollar supplies in the market,” said a trader at one commercial bank.
“Our remittance and reserve levels are looking good and that’s supporting the shilling. We last saw this levels just after the August elections,” he added.
Diaspora remittances hit a record high of Sh19.2 billion ($185 million) in October, driven by higher inflows from Kenyans in the US who are now on average sending home more than Sh10 billion a month.
These good dollar inflows, coupled with strong foreign reserves position held by the Central Bank of Kenya, which stood at $7.099 billion – or 4.71 import cover— at the end of last week, is seen holding the shilling below Sh103.50 in coming weeks.
“We expect some spikes on the shilling in low liquidity as we head towards the holiday season. The central bank will be keen to support the shilling like before,” the trader said.
The shilling has been relatively stable this year, down half a percentage point, as the central bank kept it supported with liquidity mop ups and occasional dollar sale.