During the week, the Kenyan shilling depreciated by 0.2 percent against the US dollar to close the week at Kshs 109.8, from Kshs 109.5 recorded the previous week.
This was mainly attributable to increased dollar demand from commodities and the energy sector importers which outweighed the supply of dollars from exporters.
On a YTD basis, the shilling has depreciated by 0.6 percent against the dollar, in comparison to the 7.7 percent depreciation recorded in 2020.
According to Cytonn Investments, the shilling is expected to remain under pressure for the remainder of 2021 as a result of rising uncertainties in the global market due to the Coronavirus pandemic.
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The uncertain operating environment has seen investors continue to prefer holding their investments in dollars and other hard currencies and commodities.
The pressure on the shilling will further be exacerbated by the widened current account position which increased by 0.2 percentage points to 5.4 percent of GDP in the 12 months to June 2021 from 5.2 percent of GDP for a similar period in 2020.
Cytonn holds that the shilling’s probable depreciation will also result from the demand from energy importers as they beef up their hard currency positions.
On the other hand, the shilling is expected to be supported by the forex reserves, currently at 9.0 billion – equivalent to 5.5 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 is also bound to support the Kenyan shilling. The remittances increased by 14.7 percent year to year to 372.6 million dollars in July 2021, from 317.8 million dollars recorded over the same period in 2020. This has continued to cushion the shilling against further depreciation.