Covid-19 Uncertainties To Continue Affecting Kenyan Shilling

The Kenyan shilling remained stable against the US dollar closing at 108.0 shillings last week, the same as was recorded the previous week, as the demand for the dollar matched its supply in the local currency market.

On a YTD basis, the shilling has appreciated by 1.1 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 Investments in their latest report.

Pressure on the local currency 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 shilling will also be hit by 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 9.6 bn (equivalent to 5.9 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.

At the same time, the stable current account position 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 mn in May 2021, from USD 258.2 mn recorded over the same period in 2020, which has continued to cushion the shilling against further depreciation.

The Kenyan shilling has remained resilient against the US Dollar even as the Covid-19 pandemic continues to sweep around the world. Analysts had predicted its downfall but as the year moves towards the end, it has remained strong.

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