Shilling Crawls 0.2% Up As Coronavirus Comes Knocking

The Kenya Shilling appreciated by 0.2 percent against the US Dollar to 102.4 shillings from 102.6 shillings recorded last week, due to reduced dollar demand from the merchandise traders.

On a YTD basis, the shilling has depreciated by 1.0 percent against the dollar, in comparison to the 0.5 percent appreciation in 2019.

“In our view, the shilling should remain relatively stable against the dollar with a bias to a 2.4 percent depreciation by the end of 2020,” said Cytonn Investments.

The shilling will receive a hit from the rising uncertainties in the global market due to the Coronavirus outbreak, which has seen the disruption of global supply chains.

The shortage of imports from China for instance, which accounts for an estimated 21.0 percent of the country’s imports, is likely to cause local importers to look for alternative import markets, which may be more expensive and as such higher demand for the dollar from merchandise importers.

The shillings is also being affected by the subdued diaspora remittances growth following the close of the 10.0 percent tax amnesty window in July 2019.

“We also foresee reduced diaspora remittances, owing to the decline in economic activities globally hence a reduction in disposable incomes. This coupled with increased prices of household items abroad might see a reduction in money expatriated into the country”

However, the shilling is likely to be supported by high levels of forex reserves, currently at USD 8.4 bn (equivalent to 5.1-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 Central Bank of Kenya (CBK) is still supportive with its activities in the money markets, with the Central Bank of Kenya (CBK) having already indicated that it’s looking to purchase USD 400.0 mn from banks in the next four months, which will bolster the forex reserves that stood at USD 8.4 bn on 28^th February 2020.

READ: Kenyan Shilling Still Holding Strong Against The US Dollar