Last week, the Kenyan shilling remained under pressure against the US dollar, depreciating marginally by 0.1 percent, to close at 108.4 shillings from 108.3 shillings the previous week.
The marginal depreciation, according to Cytonn Investments, was mainly attributable to increased dollar demand from importers, coupled with the lack of adequate sellers in the market.
On a YTD basis, the shilling has depreciated by 7.0 percent against the dollar, in comparison to the 0.5 percent appreciation in 2019.
The shilling will receive support from the high levels of forex reserves, currently at USD 8.9 million, 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 currently a relatively strong diaspora remittance that increased by 23.4 percent to USD 277.0 million in July compared to USD 225 million in July 2019, despite being 4.0 percent lower than the USD 288.5 million in June 2020, leading to the narrowing of the country’s current account deficit to 4.7 percent of GDP in the 12 months to July 2020, compared to 5.0 percent of GDP in the 12 months to June.
Rates in the fixed income market have remained relatively stable due to the high liquidity in the money markets, coupled with the discipline by the Central Bank as they reject expensive bids.
The government is 59.0 percent ahead of its prorated borrowing target of 112.2 billion shillings having borrowed 178.5 billion shillings.
“In our view, the government will not be able to meet their revenue collection targets of 1.9 trillion shillings for FY’2020/2021 because of the current subdued economic performance in the country brought about by the spread of COVID-19,” said Cytonn.
“Owing to this uncertain environment, our view is that investors should be biased towards short-term to medium-term fixed income securities to reduce duration risk,” they added.