Forex: No policy shift needed on shilling

KENYA’S shilling was overvalued by about 5 percent to 10 percent to the dollar, but demand for imports and other market pressures were likely to weaken it gradually, so no policy change was required, the International Monetary Fund (IMF) said. The shilling has lost 1.7 percent since the start of 2015 against the dollar, after a 4.5 percent fall in 2014 that was largely blamed on a downturn in the vital tourism industry after a number of militant attacks. It was trading at 91.85/92.05 to the dollar (R11.60) yesterday. “We did an assessment a few months ago and we found there was an excess of valuation around 5 percent and 10 percent at that time,” said Armando Morales, the IMF’s representative in Kenya. A new evaluation was needed “but at this point it is probably going to be around the same levels”, he said on Wednesday. To keep Kenya competitive, the shilling needed to be in the upper 90s to the dollar, Morales said. “People should not get worried if the exchange rate depreciates gradually,” he said. But there was no need for the government to adjust policy because the expanding economy would drive up imports and demand for dollars, putting pressure on the shilling. The IMF expects the economy to grow 6.9 percent this year. – Reuters