Kenyan Shilling Depreciated The Highest In November

During the month of November, the Kenya Shilling depreciated by 1.1 percent against the US Dollar to close at 110.1 shillings from 108.8 shillings recorded at the end of October.

According to Cytonn Investments, the depreciation of the local currency was mostly attributable to the persistent dollar demand from general importers, as well as low inflows from sectors like horticulture and tourism.

During the week, the Kenyan shilling depreciated against the US dollar by 0.7 percent to an all-time low of 110.7 shillings from 109.9 shillings.

On a YTD basis, the shilling has depreciated by 9.2 percent against the dollar, in comparison to the 0.5% appreciation in 2019.

Pressure from the shilling 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 continued uncertainty globally making people prefer holding dollars and other hard currencies, with the shilling getting the heat all through.

The shilling might find refuge in the Forex reserves which are currently at USD 8.0 bn (equivalent to 4.9-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 improving current account position which narrowed to 4.9 percent of GDP in the 12 months to October 2020 compared to 5.3 percent of GDP during a similar period in 2019 will cushion the shilling.

Improving diaspora remittances evidenced by a 17.3 percent y/y increase to USD 263.1 million in October 2020, from USD 224.3 million recorded over the same period in 2019, has cushioned the shilling against further depreciation.

The money markets remained liquid during the month of November mainly supported by government payments. The average interbank rate increased marginally to 3.2 percent, from 2.7 percent recorded in October.

During the week, liquidity in the market tightened with the average interbank rate increasing by 0.3 percentage points, to 3.9 percent from 3.6 percnet recorded the previous week attributable to government payments.

The average interbank volumes declined by 52.8 percent to 6.0 billion shillings, from 12.7 billion shillings recorded the previous week.