The amount of money sent by Kenyans living abroad increased by eight per cent in February, from Sh8.9 billion in 2013 to Sh9.6 billion this year.
The Central Bank of Kenya (CBK) says the 12-month cumulative remittance inflows also went up by 10.5 per cent, from Sh102.9 billion to Sh113.7 billion in the period under review.
“Remittances inflows from all regions remained resilient, with North America accounting for 48.6 per cent of total inflows amounting to Sh4.75 billion in February 2014,” said Njuguna Ndung’u, the CBK Governor.
On the other hand, inflows from Europe accounted for 27.7 per cent and increased marginally to Sh2.6 billion, while that from the rest of the world amounted to Sh2.25 billion, with a share of 23.8 per cent.
The country’s remittances last year hit a record Sh11.3 billion, 10 per cent higher than in 2012. That year, average monthly remittance inflows in the 12 months to December 2013 were Sh9.4 billion.
Apart from tea, coffee, horticulture and tourism, remittances are also Kenya’s leading source of foreign exchange.
Meanwhile, the shilling weakened late April to strike a three and a half month low as demand for dollar from manufacturers and energy firms went up.
Forex traders said there is a likelihood the local currency would dip further. They say this is being propelled by the trickling in of the end of month demand and interbank players.
According to Andlip Nazir, a senior trader at I&M Bank, importer demand for the greenback would build up towards the end of April. “We expect the dollar to gain against the shilling in the days ahead. There will be pressure.”
Financial analysts, however, say there could be some relief in the horizon if CBK comes to the market to mop up shilling liquidity.
In April, the Central Bank mopped up Sh11.3 billion in excess liquidity using repurchase agreements. It had sought to drain Sh15 billion.
According to Reuters, market participants expect the Kenyan currency, which has lost 0.63 per cent against the dollar this year, to trade in the 86.80 – 87.30 range in coming days.
Normally, the exchange rate of one currency against the other is influenced by a number of factors. They include the supply and demand of the two currencies, economic performance, inflation outlook, interest rate differentials and capital flows.
While the impact of a currency’s turnings on an economy is far-reaching, most people do not pay close attention to exchange rates because most of their businesses are conducted in their domestic currency.
For the typical consumer, exchange rates only come into focus during occasional transactions such as foreign travel, import payments or overseas remittances. However, an unduly strong currency can exert a significant drag on the underlying economy over the long term, as entire industries are rendered uncompetitive and thousands of jobs are lost.
Economists agree that the value of the domestic currency in the foreign exchange market is an important instrument in a central bank’s toolkit, as well as a key consideration when it sets monetary policy. “Currency levels affect a number of key economic variables. They play a role in the interest rate you pay on your mortgage, the returns on your investment portfolio, the price of groceries in your local supermarket, and even your job prospects,” said Otieno Oloo, a financial analyst in Nairobi.
The last time the shilling hit a record low was in 2011 when it exchanged at 107 against the dollar. The shilling, which fell 33 per cent against the dollar that year, lurched from one record low to another, first sinking to 106.2 before hitting low of 107.