During the week, the Kenya Shilling depreciated by 0.2 percent against the US Dollar to close the week at 106.9 shillings, from 106.7 shillings, recorded the previous week.
Traders attributed the slight depreciation to increased dollar demand from the energy sector and general merchants as businesses reopen following recent easing of movement restrictions.
The demand was, however, weighed down by the inflows from the horticulture exports. On a YTD basis, the shilling has depreciated by 5.5 percent against the dollar, in comparison to the 0.5 percent appreciation in 2019.
Pressure on the local currency will continue coming 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.
There is a subdued diaspora remittance evidenced by the 9.0 percent decline to USD 208.2 mn in April 2020, from USD 228.8 seen the previous month, mainly due to the decline in economic activities globally, coupled with increased prices of household items leading to lower disposable income.
In terms of y/y performance, diaspora remittances declined by 15.1 percent to USD 208.2 mn in April 2020 down from USD 245.4 mn recorded in April 2019. Key to note, the Central Bank of Kenya (CBK) expects a 12.0 percent decline in remittances in 2020.
The shilling is however expected to be supported by the high levels of forex reserves, currently at USD 9.7 billion (equivalent to 5.8-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.