Shilling Hits Its 9-Year-Low As Covid-19 Continues To Bite

During the week, the Kenya Shilling depreciated by 1.0 percent against the US Dollar to close at 107.2 shillings, from 106.2 shillings recorded the previous week.

The continuous falling of the local currency was attributable to the increased dollar demand pressure from the energy and telecommunications sector on account of reduced foreign currency inflows.

This is a 9-year low record with the last intra-day low record seen on October 11^th, 2011 when the Kenya Shilling traded at 107.0 shillings against the US Dollar.

On a YTD basis, the shilling has depreciated by 5.8 percent against the dollar, in comparison to the 0.5 percent appreciation in 2019.

Cytonn Investments says that the shilling will receive heat from high dollar demand from foreigners exiting the market as they direct their funds to safer havens as well as merchandise, and energy sector importers beefing up their hard currency positions amid a slowdown in foreign dollar currency inflows to meet the dollar demand.

There is a subdued diaspora remittances growth following the close of the 10.0 percent tax amnesty window in July 2019.

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

The shilling is however expected to be supported by high levels of forex reserves, currently at USD 7.9 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 of its 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.

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