Shilling hits 7-month high as dividends fall

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Economy

Shilling hits 7-month high as dividends fall


alushula

Summary

  • The shilling strengthened to a seven-month high against the US dollar on Wednesday, with traders associating it with flower shipments and muted currency demand over the tight dividend distribution.
  • It closed the day with an average of 108.25 units against the dollar against 108.60 units at the close of trading on Tuesday, marking the 10th consecutive day of the advance of the US dollar.

The shilling strengthened to a seven-month high against the US dollar on Wednesday, with traders associating it with flower shipments and muted currency demand over the tight dividend distribution.

It closed the day with an average of 108.25 units against the dollar against 108.60 units at the close of trading on Tuesday, marking the 10th consecutive day of the advance of the US dollar.

This is the highest level since September 1, 2020, when it was at 108.21 and despite the foreign exchange reserves of the Central Bank of Kenya (CBK) opening the month to the three-year low of 802 , 6 billion shillings ($ 7.343 billion) or 4.51 months of import coverage. .

Currency traders said the decision of big banks such as KCB, Standard Chartered Bank Kenya, Absa Kenya and Equity to cut or freeze dividends had reduced pressure on the shilling.

“The bottom line is that dividend payments have declined this year compared to previous years, reducing the pressure typically seen on the shilling in April and May, when many companies are buying dollars to pay foreign investors,” said a large currency trader. sought anonymity.

“There has also been a lot of investor influx from the 60 billion shillings tax-free infrastructure bond. The streams from the Valentine’s Day flower sales have also arrived.

KCB #ticker: KCB, Standard Chartered Bank Kenya #ticker: SCBK, DTB #ticker: DTK, Absa Kenya #ticker: ABSA, Stanbic #ticker: SBIC, Equity #ticker: EQTY and I&M #ticker: I&M cut dividends by 51.8 per cent or a Sh32 billion combined with Sh29.76 billion, easing the need to store dollars for payment to foreign investors.

The dividend cuts were driven by a desire for strong capital buffers, as net income fell in line with the increase in default provisions given the economic fallout from Covid-19 that borrowers face.

The shilling is also expected to benefit from increased remittances from sectors such as horticulture.

Data from the CBK showed that remittances reached $ 260.3 million last February, up 11.4% from the previous similar period and are expected to be larger this year thanks to the gradual economic recovery.

Kenya’s foreign exchange reserve had reached 4.51 months of import coverage, barely 0.01 percentage point above the East African Community’s convergence criteria of 4.5 months of import coverage.

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