The Kenyan shilling appreciated against the US dollar by 0.6 percent to close at 107.5 shillings from 108.2 shillings recorded the previous week.
During the week, the Kenyan shilling appreciated against the US dollar by 0.6 percent to close at 107.5 shillings from 108.2 shillings recorded the previous week.
According to data compiled by Cytonn Investments, the slight appreciation was mainly due to adequate supply of dollars from exporters amid a drop in demand from commodity importers.
On a YTD basis, the shilling has appreciated by 1.5 percent against the dollar, in comparison to the 7.7 percent depreciation recorded in 2020.
“Despite the recent appreciation of the shilling, we expect the shilling to remain under pressure in 2021,” said Cytonn in their latest report for the week.
The shilling will get pressure 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.
Pressure will also arise as a result of the demand from merchandise traders as they beef up their hard currency positions in anticipation of more trading partners reopening their economies globally.
The shilling is however expected to be supported by the Forex reserves, currently at USD 7.5 bn (equivalent to 4.6-months of import cover), 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 stable current account position which is estimated to be at a deficit of 5.2 percent of GDP in the 12 months to April 2021 and is projected to remain at the same level in 2021 will also shield the shilling.
Improving diaspora remittances evidenced by a 43.8 percent y/y increase to USD 299.3 mn in April 2021, from USD 208.2 mn recorded over the same period in 2020, has cushioned the shilling against further depreciation.