Shilling Lost 2.5% In April, What Is In Store For May?

During the month of April, the Kenya Shilling depreciated by 2.5 percent against the US Dollar to close at 107.3 shillings from 104.7 shillings recorded at the end of March.

The depreciation of the shilling was mostly attributable to the rising uncertainties in the global markets due to the COVID-19 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.

During the week, the Kenya Shilling depreciated marginally against the US Dollar to close at 107.3 shillings from 107.2 shillings recorded the previous week.

The slight depreciation last week was attributable to a slight increase in dollar demand from merchandise and oil importers as they move to meet their end-month obligations.

This was a 9-year low since 107.0 shillings recorded on 11^th October 2011. On a YTD basis, the shilling has depreciated by 5.9 percent against the dollar, in comparison to the 0.5% appreciation in 2019.

Pressure for the shilling will be due to 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 subdued diaspora remittance growth, 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.

The shilling will receive support from the high levels of forex reserves, currently at USD 7.9 million, 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, and,

The Central Bank of Kenya (CBK) has continued to remain 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.

READ: Shilling Depreciates To A 4.5-Year-Low Over Coronavirus Fears