Kenyan Shilling Dips Slightly For The First Time In 2020

The Kenyan shilling that has been shining against the US Dollar since the beginning of 2020 depreciated slightly last week but still stronger than it was towards the end of 2019.

In the stats compiled by Cytonn Investments, the Kenya Shilling depreciated by 0.1 percent against the US Dollar during the week to 100.6 shillings from 100.4 shillings recorded last week.

The slight dip of the local currency was mostly supported by increased dollar demand by merchandise and corporate importers as well as increased liquidity in the money market.

On a YTD basis, the shilling has appreciated by 0.7 percent against the dollar, in comparison to the 0.5 percent appreciation in 2019.

“The shilling should remain relatively stable against the dollar in the short term with a bias to a 2.4 percent depreciation by the end of 2020,” said Cytonn in a report.

The shilling continues to enjoy the glory of the narrowing of the current account deficit, with preliminary data indicating that Kenya’s current account deficit was equivalent to 4.6 percent of GDP in 2019, from 5.0 percent recorded in 2018.

The narrowing current deficit was mainly driven by lower imports of SGR-related equipment, resilient diaspora remittances which cumulatively stood at USD 2.8 billion in December 2019, a 3.7 percent increase from the USD 2.7 billion recorded in December 2018.

The narrowing deficit has also been occasioned by strong receipts from transport and tourism services with preliminary data indicating that the number of tourists landing in the country stood at 132,019 in the month of December 2019, which was a 9.0 percent increase, compared to the 121,070 recorded in November 2019.

Currently, there are high levels of forex reserves, currently at USD 8.5 billion (equivalent to 5.2-months of import cover), above the statutory requirement of maintaining at least 4.0-months of import cover, and the EAC region’s convergence criteria of 4.5-months of import cover.

The local currency is also protected by the foreign capital inflows, with investors looking to participate in the domestic equities market. The Central Bank of Kenya (CBK) has remained supportive of its activities in the money market, such as repurchase agreements and selling of dollars. During the week, the CBK had to mop up Kshs 15.0 bn through repurchase agreements to ease liquidity in the market.

“We, however, expect pressure on the shilling to arise from subdued diaspora remittances growth following the close of the 10.0% tax amnesty window in July 2019, which has seen cumulative diaspora remittances increase by a 3.7 percent in the 12-months to December 2019 to USD 2.8 billion from USD 2.7 billion in 2018,” said Cytonn.

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