Kenyan Shilling Might Not Be Off The Hook In 2021

By Soko Directory Team / Published January 18, 2021 | 9:23 am

The Kenyan Shilling depreciated by 7.7 percent against the USD during the year to close at 109.2 shillings, mainly due to increased dollar demand.

During the year, people preferred holding onto hard currency during such times and also a decline in dollar inflows from both exports of goods and services like tourism.

Support for the shilling came from the high Diaspora inflows which rose by 10.7 percent to a record high of USD 3,094 million for 2020, compared to the USD 2,796.6 million recorded in 2019.

The Central Bank of Kenya (CBK) has also been supportive of its activities through open market operations, such as sale and repurchase agreements.

There is an 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.

The expectation of stable fuel prices in the global markets attributable to the continued global recovery, coupled with increased production in the US which should counterbalance the supply cuts by OPEC hence making the amounts spent on Oil predictable.

Pressure on the local currency is expected to come from the dwindling forex reserves which have been on a downward trend since June 2020 where we had USD 9.7 bn, compared to the close of 2020 where we had USD 7.8 bn.

Notably, 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.

The shillings will also be hit by the lower exports especially horticultural products due to lower demand as the countries that they are exported to are affected by the lockdown restrictions and also as the individuals have lesser income to spend, support forex inflow through remittances inflows, and export earnings which have been on the rise in the tail end of 2020.

“We expect the shilling to remain within a range of Kshs 107.0 and Kshs 110.0 against the USD in 2020 with a bias to a 0.4% appreciation by the end of 2021,” said Cytonn.

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