Shilling Remains Relatively Stable Against The US Dollar

During the week, the Kenyan shilling remained relatively stable, closing the week at 107.75 shillings, from 107.80 shillings recorded the previous week, mainly attributable to lackluster dollar demand from importers.

On a YTD basis, the shilling has appreciated by 1.3 percent against the dollar, in comparison to the 7.7 percent depreciation recorded in 2020.

“Despite the recent appreciation, we expect the shilling to remain under pressure in 2021,” said analysts from Cytonn Investments in their latest report.

Pressure on the shilling will come 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.

The increasing demand from merchandise traders as they beef up their hard currency positions in anticipation for more trading partners reopening their economies globally will stretch the local currency.

The shilling is however expected to be supported by the Forex reserves, currently at USD 8.1 bn (equivalent to 5.0-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.

Key to note, there was an increase in the forex reserves attributable to proceeds of the Eurobond issue coupled with the USD 407.0 mn IMF disbursement.

The shilling will also be supported by the stable current account position which is estimated to remain at a deficit of 5.2 percent of GDP in 2021.

The improving diaspora remittances evidenced by a 22.3 percent y/y increase to USD 315.8 million in May 2021, from USD 258.2 million recorded over the same period in 2020, which has continued to cushion the shilling against further depreciation.

The dollar inflows from the IMF and World Bank loans in addition to the Eurobond issue will support the local currency according to Cytonn.

Read More: Covid-19 Uncertainties Still A Challenge For The Kenyan Shilling