Kenyan Shilling Sheds Off 0.2% Against The US Dollar

The Kenyan shilling depreciated marginally by 0.2 percent against the US dollar closing at 108.2 shillings, from 108.0 shillings recorded the previous week, attributable to increased dollar demand.

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 analysts 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 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 attributable to lower service receipts, which offset the increased receipts from exports and remittances.

The demand from merchandise traders as they beef up their hard currency positions in anticipation of more trading partners reopening their economies globally will pile pressure on the shilling.

Support for the shilling will come from 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.

The Improving diaspora remittances evidenced by a 6.0% 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.

During the week, liquidity in the money market eased, with the average interbank rate decreasing to 4.2 percent from 4.9 percent recorded the previous week.

This was partly attributable to government payments, including Term Auction Deposits (TADs) maturities of Kshs 81.3 bn which offset the settlements of government securities and tax remittances.

The average interbank volumes traded declined by 58.4 percent to 4.6 billion shillings, from 11.0 billion shillings recorded the previous week.

Read More: Shilling Remains Relatively Stable Against The US Dollar