Shilling Slightly Sheds 0.1% But Still Holding Ground

The Kenyan shilling depreciated by 0.1 percent against the US dollar to 109.6 shillings, from 109.5 shillings recorded the previous week.

The slight depreciation of the local currency was mainly attributable to increased dollar demand from the energy sector and other general goods importers.

“On a YTD basis, the shilling has depreciated by 0.3 percent against the dollar, in comparison to the 7.7 percent depreciation recorded in 2020,” said Cytonn Investments in a statement.

Pressure on the shilling is expected to come from the demand from merchandise traders as they beef up their hard currency positions.

Pressure will also come from the slowdown in foreign dollar currency inflows due to reduced dollar inflows from sectors such as tourism and horticulture, as well as the continued uncertainty globally making people prefer holding dollars and other hard currencies.

Support for the shilling will come from the Forex reserves which are currently at USD 7.6 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.

There is the improving current account position which narrowed to 4.8 percent of GDP in the 12 months to December 2020 compared to 5.8% of GDP during a similar period in 2019 which will boost hopes for the shilling.

Improving diaspora remittances evidenced by a 19.7 percent y/y increase to USD 299.6 million in December 2020, from USD 250.3 million recorded over the same period in 2019, has cushioned the shilling against further depreciation.

READ: Shilling Oscillates At 109.6 Against The Dollar During The Week