Kenyan Shilling Hits 108 Against The US Dollar

Last week, the Kenya Shilling depreciated by 0.5 percent against the US Dollar to close the week at 108.0 shillings from 107.5 shillings recorded the previous week.

The depreciation of the local currency was attributed to increased demand for hard currencies by importers who are resuming business after the easing of the pandemic restrictions.

On a year-to-date basis, the shilling has depreciated by 6.6 percent against the dollar, in comparison to the 0.5 percent appreciation in 2019.

The shilling will continue receiving pressure from the demand from merchandise and energy sector importers as they beef up their hard currency positions.

The deteriorating current account position, with the current account deficit deteriorating by 10.2 percent during Q1’2020, to 110.9 billion shillings from 100.6 billion shillings recorded in Q1’2019 attributable to:

3.0 percent decline in the secondary income (transfers recorded in the balance of payments whenever an economy provides or receives goods, services, income or financial items) balance, to 124.1 billion shillings from 128.0 billion shillings in Q1’2019

A 67.0 percent decline in the services trade balance (the difference between the imports and exports of services) to 20.4 billion shillings from 61.9 billion shillings will hit hard on the shilling.

The shilling is however expected to be supported by high levels of forex reserves, currently at USD 9.7 billion (equivalent to 5.9-months of import cover), this 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.

There is an improving diaspora remittance evidenced by the 24.0 percent increase to USD 258.2 million in May 2020, from USD 208.2 seen the previous month, mainly due to the improvements in economic activities globally, as countries abroad eased their coronavirus restrictions.

In terms of y/y performance, diaspora remittances increased by 6.2 percent to USD 258.2 million in May 2020, from USD 243.2 million recorded in May 2019.

READ: 9 Small Businesses You Can Start With Less Than 20,000 Shillings