Shilling Smiles For The First Time In Weeks Against The Dollar

During the week, the Kenya Shilling appreciated by 1.2 percent against the US Dollar to close at 106.0 shillings from 107.3 shillings recorded the previous week.

The local currency has been under pressure from the US Dollar coupled with the ongoing Covid-19 pandemic that has hindered imports and exports between Kenya and such countries as China.

The slight appreciation of the shilling, according to stats from Cytonn Investments, was supported by reduced dollar demand from oil and merchandise importers as well as commercial banks selling off their excess dollars.

On a YTD basis, the shilling has depreciated by 4.6 percent against the dollar, in comparison to the 0.5 percent appreciation in 2019.

Pressure on the shilling will continue on 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 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.”

Support for the shilling will come from the high levels of forex reserves, currently at USD 7.8 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.

The inflows from the IMF Rapid Credit Facility (RCF) approved during the week is expected to add 78.7 billion shillings to the forex reserves.

The CBK’s 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 will help the shilling.

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