Kenyan Shilling Has A Long Way To Get Out Of The Woods

The Kenyan shilling seems to have a long way to go before getting out of the woods where it is still receiving a beating from the US Dollar as well as other major currencies.

The local currency shilling depreciated last week against the US dollar by 0.3 percent to 109.5 shillings, from 109.2 shillings recorded the previous week.

The slight depreciation was attributable to dollar demand from traders as they resume business after the festive season.

On a YTD basis, the shilling has depreciated by 0.3 percent against the dollar, in comparison to the 7.7 percent depreciation in 2020 and the 0.5 percent appreciation in 2019.

Pressure on the shillings will continue coming 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 usual, the continued uncertainty globally making people prefer holding dollars and other hard currencies. Since the pandemic is still hovering around for a while, the shilling is in for a rough ride.

The Forex reserves which are currently at USD 7.7 billion 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 will support the shilling.

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 of GDP during a similar period in 2019 is set to cushion the shilling in the short period.

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, has cushioned the shilling against further depreciation,

The continued reopening of the global economy as the COVID-19 vaccine becomes more accessible is set to give the local currency a lifeline.

READ: Kenyan Shilling Still Struggling Against The US Dollar