Kenyan Shilling Contracted 3.3% In Q1 Of 2020

The Kenya Shilling depreciated against the US Dollar by 3.3 percent in Q1’2020, to close at 104.7 shillings from 101.3 shillings at the end of Q4’2019.

The depreciation has been attributed to the persistent worries about the impact of the Coronavirus outbreak on export earnings, prompting CBK to sell dollars to limit the losses.

During the week, the Kenya Shilling depreciated against the US Dollar by 0.5 percent to close at 105.7 from 105.1, the previous week.

The shilling still faces a gloomy future 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 is 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,” said Cytonn Investments.

The local currency is likely to receive the support from the high levels of forex reserves, currently at USD 7.9 billion (equivalent to 4.8-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.

CBK’s supportive 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 for four months beginning from March to bolster the forex reserves.

READ: Kenya’s Q1 Average Inflation Hits 6.1% From 4.4%