Kenyan Shilling Depreciated The Most At 7.7% In 2020

The Kenyan shilling was on the receiving end against the dollar in the year 2020. Coupled with the uncertainty brought about by the Covid-19 pandemic, the shilling kept on receiving blows from the US dollar sending chills among investors.

Cytonn Investments in their annual report have concluded that indeed the shilling was under pressure in 2021. The Kenya Shilling depreciated by 7.7 percent against the US Dollar to close at Kshs 109.2 in 2020, compared to Kshs 101.3 at the end of 2019.

The shilling was under pressure from increased dollar demand as people prefer holding onto hard currency during such times and also a decline in dollar inflows from both exports of goods and services like tourism. The Central Bank was active in the market to help support the currency.

Consequently, the county’s foreign exchange reserves have been on the decline but despite this, we are still well 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.

To help the shilling, the Government agreed to a USD 2.3 billion credit drawdown facility with the IMF, Kenya targeting an initial disbursement of about USD 725.0 mn in this fiscal year.

The facility will be a welcome relief to the currency as it will aid in boosting the forex reserves and help improve market sentiments.

This was after the IMF completed its virtual mission to Kenya identifying that the country has suffered unprecedented shock from the pandemic and held discussions with the authorities on a program to support the next phase of their COVID-19 response.

CBK’s supportive activities in the money market, such as repurchase agreements and selling of dollars will also help to cushion the shilling against the heat.

Monetary policy support from CBK by maintaining the policy rate at the current 7.0 percent, a further reduction would lead to a further depreciation of the shilling.