Kenya’s Exchange Rate stays flat: Report

Kenya’s Exchange Rate has remained “neutral” according to economic indicators by investment firm, Cytonn Investment limited.

“We expect it to remain so for the rest of the year. The currency has remained relatively stable since the beginning of the year, hitting a high of Kshs 100.0 in April, supported by increased horticulture export inflows, the increased level of forex reserves following receipt of the Eurobond II proceeds, and the IMF extending the USD 1.5 bn standby credit and precautionary agreement,” reads the report by the firm. “We have maintained our outlook on Interest Rates at “neutral”, and expect it to remain so throughout the year.

“At the beginning of the year, we expected upward pressure on interest rates as the government was behind its borrowing target, but with the interest rate cap still in place, we expected the CBK to keep rates low by rejecting bids deemed expensive in primary bond auctions.

Now with the domestic borrowing target for the fiscal year 2018/19 at Kshs 271.9 bn, 8.6% lower than the 2017/18 fiscal year’s target, there may be reduced pressure on domestic borrowing.  However, if the proposal by the National Treasury to repeal the interest rate cap is implemented it can result in upward pressure on interest rates, as banks would resume pricing of loans to the private sector based on their risk profiles. However, with the cap still in place, we maintain our expectation of stability in the interest rate environment,

 Inflation remains “positive” for 2018 with the average inflation rate for H1’2018 coming in at 4.2% compared to 9.8% in H1’2017. We project inflation to average 7.0% in 2018, down from 8.0% in 2017 and within the government target range of 2.5% – 7.5%,