Kenyan Shilling Sheds 0.5% On Increased Dollar Demand

Last week, the Kenya Shilling depreciated by 0.5 percent against the US Dollar to close the week at 107.5 shillings from 106.9 shillings, recorded the previous week.

The slight depreciation was attributable to increased dollar demands from importers as global economies continued easing movement restrictions.

On a YTD basis, the shilling has depreciated by 6.0 percent against the dollar, in comparison to the 0.5 percent appreciation in 2019.

According to Cytonn Investments, the shilling will continue getting 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.

Currently, there is a 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.

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The shilling is however expected to be supported by the high levels of forex reserves, currently at USD 9.7 billion 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.

As cases of Covid-19 continues to rise in Kenya, the Kenyan shillings has remained under attack from major currencies such as the pound and the US dollar.

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