Kenyan Shilling Under Pressure But Still Putting Up A Spirited Fight

As Covid-19 continues to sweep across Kenya, the local currency has been under constant pressure from the US dollar despite efforts by the Central Bank of Kenya to shield it.

Last week, the Kenyan shilling marginally appreciated by 0.8 percent to close the week at 106.1 shillings from 106.9 shillings the previous week.

According to Cytonn Investments Limited, the slight strengthening of the shilling was supported by strong inflows, agricultural and horticultural exports amid low dollar demand from merchandise importers.

On a year-to-date basis, the Kenyan shilling has depreciated by 4.7 percent against the US dollar in comparison to 0.5 percent appreciation in 2019.

This week, pressure for the shilling is likely to come from high dollar demand from foreigners exiting the markets as they channel their funds to safer havens.

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

There is likely to be increased demand as merchandise and energy sector importers beef up their hard currency position amid a slowdown in foreign dollar currency inflows.

Currently, there is a subdued diaspora remittance as evidenced by the 9.0 percent decline to USD 208.2 million in April 2020, from USD 228.8 million witnessed the previous month.

The Central Bank of Kenya (CBK) says that it is expecting a decline in foreign remittances by 12.0 percent in 2020.

Support for the shilling according to data compiled by Cytonn Investments is likely to come from the current high forex reserves.

President Uhuru Kenyatta was expected to open up the economy during his speech to the nation on June 6, 2020, but failed to do so saying the country was not ready to handle the growing numbers if restrictions were suddenly lifted.

Most businesses are still shut and those open are not getting customers as they used to. Despite Kenyan commercial banks promising to help out businesses during this pandemic, the majority stopped issuing loans.

The impact of Covid-19 on the Kenyan economy is not yet clear.

READ: Shilling Slightly Appreciates In May But Pressure Still High