Shilling Dips Further Against The Dollar As Covid-19 Reigns Supreme

During the week, the Kenya Shilling depreciated by 0.2 percent against the US Dollar to close at 106.2 shillings from 106.0 shillings recorded the previous week

Data collected by Cytonn Investments indicates that the shilling depreciated due to a slowdown in foreign dollar currency inflows from diaspora remittances and fewer offshore investors to meet dollar demand.

On a YTD basis, the shilling has depreciated by 4.8 percent against the dollar, in comparison to the 0.5 percent appreciation in 2019.

The local currency still faces a gloomy future due to 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.

There is a continuous 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.

All is not lost for the shilling for it is expected to be supported by the high levels of forex reserves, currently at USD 8.0 million (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.

The Central Bank of Kenya (CBK) has remained supportive activities in the money markets, with the CBK having already indicated that it’s looking to purchase USD 400.0 mn from banks for four months beginning from March 2020 to bolster the forex reserves.

READ: Shilling Sheds Off 0.4% In February But Still Resilient