Dollars remitted home by Kenyans living abroad in the festive period have helped the shilling regain some of the ground it lost against the greenback earlier this month, with light demand for the United States unit in the market also helping the local currency.
Commercial banks traded the shilling at an average of 101.80 units to the US dollar on Monday, a slight appreciation from the closing rate of 101.84 recorded on Friday.
With just three trading days this week due to the Christmas and Boxing Day holidays, the currency is expected to remain trading in a tight range as most investors sit out.
Traders said on Monday that dollar demand from oil and merchandise importers remained subdued on the day, and is likely to remain so until the end of the week, while banks were also selling some of their dollar holdings in order to meet shilling reserve requirements at the Central Bank of Kenya.
At the end of last week, the latest CBK data shows, official foreign currency reserves went up by $25 million (Sh2.5 billion) to $8.005 billion (Sh815 billion), suggesting that the regulator was taking up some of the dollars being sold by commercial banks.
“We expect the shilling to be firmed up by end-year greenback inflows,” said Genghis Capital analysts in a market note on Monday.
The appreciation was also attributed to the tight liquidity in the market, with banks offloading the greenback so as to meet reserve requirements, amid subdued dollar demand from oil and merchandise importers.
The CBK, as a result, was in the market on Monday to mop up Sh10 billion through open market operations.
Analysts say the shilling was always bound to get a boost from higher remittances this month, going by past trends.
The remittances have in the past gone up significantly in December compared to the average over the other 11 months of the year.
Last year, December remittances stood at Sh20.8 billion, against a monthly average of Sh16.2 billion between January and November.
The same trend was seen in 2016, when the December remittances stood at Sh16.4 billion against an average of Sh14 billion for the rest of the year.
The shilling has also been buoyed further by inflows from the tourism industry during the festive period.
Hoteliers in Mombasa have reported that in the December holiday season, the number of international holidaymakers has gone up by 22.4 percent over last year, following an increase in the number of chartered, international direct and local daily flights to coastal resort city.