Kenyan Shilling Slightly Dips By 0.4% Against The Dollar

As Covid-19 continues to sweep across the country, the Kenyan shillings has continued being on the receiving end, getting the heat from global giants such as the US Dollar.

Last week, the Kenya Shilling depreciated by 0.4 percent against the US Dollar to close the week at 106.5 shillings, from 106.1 shillings, recorded the previous week.

The traders attributed the slight depreciation of the local currency to an increase in dollar demand from merchandise importers as the easing of coronavirus restrictions jumpstarted economic activities thus boosting demand for hard currency.

On a YTD basis, the shilling has depreciated by 5.1 percent against the dollar, in comparison to the 0.5 percent appreciation in 2019.

The shilling is expected to continue being under pressure from the demand from merchandise and energy sector importers as they beef up their hard currency positions amid a slowdown in foreign dollar currency inflows.

Pressure will also come from the subdued diaspora remittances evidenced by the 9.0 percent decline to USD 208.2 million in April 2020, from USD 228.8 seen the previous month.

The subdued remittances are mainly due to the decline in economic activities globally, coupled with increased prices of household items leading to lower disposable income. Key to note, the Central Bank of Kenya (CBK) expects a 12.0% decline in remittances in 2020.

The shilling is however expected to be supported by the high levels of forex reserves, currently at USD 9.2 mn (equivalent to 5.6-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.

Analysts have been thrown off-balance and are unable to predict the direction the shilling will take given the unpredictable impact of Covid-19 to economies around the world.

The National Treasury has since outlined the national budget for the financial year 2020/2021 that stood at 2.73 trillion shillings, with a hole of more than 800 billion shillings expected to be filled through borrowing.

READ: Kenyan Shilling Appreciates Marginally Against The Dollar