Kenyan Shilling Continues To Receive A Beating From The Dollar

The Kenyan shilling has continued to receive a beating from the US Dollar as the year 2020 snails to an end coupled with the massive spread of the second wave of the Covid-19 pandemic in Kenya.

Last week, the Kenyan shilling depreciated against the US dollar by 0.1 percent to an all-time low of 111.6 shillings from 111.4 shillings recorded last week.

This is partly attributable to demand for hard currency remaining subdued amid slow activity as companies closed down for the festive season.

“On a YTD basis, the shilling has depreciated by 10.1 percent against the dollar, in comparison to the 0.5 percent appreciation in 2019. We expect continued pressure on the Kenyan shilling,” said Cytonn Investments in its report.

According to experts, the shilling will continue receiving pressure from the demand from merchandise traders as they beef up their hard currency positions ahead of the festive season, amid a slowdown in foreign dollar currency inflows.

Pressure for the local currency will also come from the continued uncertainty globally making people prefer holding dollars and other hard currencies.

However, in the short term, the shilling is expected to be supported by the Forex reserves which are currently at USD 7.8 bn (equivalent to 4.8-months of import cover), which is 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.

The shilling will also be supported by the improving diaspora remittances evidenced by a 17.3 percent y/y increase to USD 263.1 mn in October 2020, from USD 224.3 mn recorded over the same period in 2019, which has cushioned the shilling against further depreciation.