During the week, the Kenyan shilling appreciated against the US dollar by 0.9 percent to 106.9 shillings, from 107.8 shillings recorded the previous week.
The slight appreciation was attributable to reduced dollar demand from general importers. On a YTD basis, the shilling has appreciated by 2.1 percent against the dollar, in comparison to the 7.7 percent depreciation recorded in 2020.
Pressure on the shillings will continue coming from the rising uncertainties in the global market due to the Coronavirus pandemic, which has seen investors continue to prefer holding their investments in dollars and other hard currencies and commodities.
There is a continued strengthening of the US Dollar against major currencies as evidenced by a YTD gain of 0.9 percent in the ICE U.S. Dollar Index as compared to a 6.7 percent decline in 2020.
The ICE U.S. Dollar Index is a benchmark index that measures the international value of the US Dollar where investors can monitor the value of the US Dollar relative to a basket of six other world currencies.
Support for the shilling will come from the Forex reserves, currently at USD 7.6 bn 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.
The improving current account position which narrowed to 4.8 percent of GDP in the 12 months to December 2020 compared to 5.8% percent of GDP during a similar period in 2019 will support the shilling.
Improving diaspora remittances evidenced by a 27.1 percent y/y increase to USD 290.8 mn in March 2021, from USD 228.8 mn recorded over the same period in 2020, has cushioned the shilling against further depreciation.
In the money markets, 3-month bank placements ended the week at 7.9 percent (based on what we have been offered by various banks), while the yield on the 91-day T-bill increased by 1.3 bps to 7.2 percent.
The average yield of the Top 5 Money Market Funds remained unchanged at 10.0 percent. Similarly, the yield on the Cytonn Money Market Fund remained unchanged at 10.5 percent.