During the week, the Kenyan shilling remained stable against the US dollar closing at 108.2 shillings as was recorded the previous week.
On a YTD basis, the shilling has appreciated by 0.9 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 experts from Cytonn Investments.
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 widened current account position which increased by 0.3 percentage points to 5.5 percent of GDP in the 12 months to May 2021 from 5.2 percent of GDP for a similar period in 2020 will continue piling pressure on the local currency.
Demand from merchandise traders as they beef up their hard currency positions in anticipation of more trading partners reopening their economies globally will also pile some pressure on the Kenyan shilling.
The shilling is however expected to be supported by the Forex reserves, currently at USD 9.4 bn (equivalent to 5.7 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.
Improving diaspora remittances evidenced by a 6.0 percent y/y increase to USD 305.9 mn in June 2021, from USD 288.5 mn recorded over the same period in 2020, which has continued to cushion the shilling against further depreciation.
Read More: Covid-19 Uncertainties Still A Challenge For The Kenyan Shilling
Rates in the fixed income market have remained relatively stable due to the sufficient levels of liquidity in the money market, coupled with the discipline by the Central Bank to reject expensive bids.
The government is 23.7 percent behind its prorated borrowing target of 50.7 billion shillings having borrowed 38.6 billion shillings in FY’2021/2022.
“We expect a gradual economic recovery going into FY’2021/2022 as evidenced by KRA collecting 1.7 trillion shillings in FY’2020/2021, a 3.9 percent increase from 1.6 trillion shillings collected in the prior fiscal year,” said Cytonn.