Kenyan Shilling Appreciates Marginally But Still Struggling

The Kenyan shilling is still struggling against the US Dollar despite the efforts being put in place to see it reclaim its depreciating glory. Already Cytonn Investment predicted it oscillating between 107 and 110 this year.

Last week, the local currency appreciated marginally against the US dollar by 0.1 percent to 109.8 shillings from 110.1 shillings recorded the previous week.

The minute appreciation was buoyed by higher dollar inflows from offshore investors into the local debt market due to the improved investor sentiment for so-called frontier assets.

On a YTD basis, the shilling has depreciated by 0.6 percent against the dollar.

“We expect continued pressure on the Kenyan shilling,” said analysts from Cytonn in their latest report.

Pressure on the shillings will come from the demand from merchandise traders as they beef up their hard currency positions as businesses reopen following the festive season, amid a slowdown in foreign dollar currency inflows.

As it was during the year 2020, the continued uncertainty globally as a result of the Covid-19 pandemic making people prefer holding dollars and other hard currencies.

In the short term, the Kenyan shilling will be supported by the Forex reserves which are currently at USD 7.8 bn (equivalent to 4.7-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.

There is also the aspect of the improving current account position which narrowed to 4.7 percent of GDP in the 12 months to November 2020 compared to 5.4 percent a similar period in 2019.

The improving diaspora remittances evidenced by a 19.7 percent y/y increase to USD 299.6 mn in December 2020, from USD 250.3 mn recorded over the same period in 2019, have cushioned the shilling against further depreciation and will support the shilling in the short term.

READ: Shilling Sheds Off 0.3% To End The Week At Its Lowest