Last week, the Kenya Shilling depreciated by 0.3 percent against the US Dollar to close the week at 108.3 shillings from 108.0 shillings recorded the previous week.
The slight depreciation was attributable to increased dollar demand from Safaricom ahead of its 56.1 billion shilling dividend payout, which they have to clear by the end of the month.
On a YTD basis, the shilling has depreciated by 6.9 percent against the dollar, in comparison to the 0.5 percent appreciation in 2019.
Experts from Cytonn Investments still hold the view that the shilling will continue being under pressure in the short-term.
Pressure on the local currency will continue piling as a result of demand from merchandise and energy sector importers as they beef up their hard currency positions.
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.
The drop in the current account position is as a result of a 3.0 percent decline in the secondary income balance, to 124.1 billion shillings from 128.0 billion shillings in Q1’2019,
Cytonn also attributes the drop in the current account positioning to 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.
The shilling is however expected to be supported by high levels of forex reserves, currently at USD 9.3 mILLION (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.
There is an improving diaspora remittance evidenced by the 11.8 percent increase to USD 288.5 million in June 2020, from USD 258.2 million seen the previous month. In terms of y/y performance, diaspora remittances decreased by 2.3 percent to USD 288.5 million in June 2020, from USD 295.3 million recorded in June 2019.
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