During the week, the Kenya Shilling depreciated by 0.8 percent against the US Dollar to close the week at 106.8, from 106.0 recorded the previous week
The slight depreciation mainly due to an uptick in demand from businesses buying hard currency to meet their obligations as economic activity slowly resumes amid the novel coronavirus pandemic.
On a YTD basis, the shilling has depreciated by 5.4 percent against the dollar, in comparison to the 0.5 percent appreciation in 2019.
The pressure is set to continue on the shilling due to high dollar demand from foreigners exiting the market as they direct their funds to safer havens.
There is increased demand as merchandise and energy sector importers beef up their hard currency positions amid a slowdown in foreign dollar currency inflows.
The subdued diaspora remittances due to the decline in economic activities globally coupled with increased prices of household items leading to lower disposable income will hurt the shilling more.
The shilling is however expected to be supported by the high levels of forex reserves, currently at USD 8.5 million (equivalent to 5.1-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 inflows from the IMF Rapid Credit Facility (RCF) approved during the week is expected to add Kshs 78.7 bn to the forex reserves, and,
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.
READ: Shilling Lost 2.5% In April, What Is In Store For May?