Kenya Shilling Sheds 0.3 Percent Against The US Dollar

During the week, the Kenyan shilling depreciated by 0.3 percent against the US dollar to close the week at 109.5 shillings from 109.2 shillings recorded the previous week.

The performance of the shilling was mainly attributable to increased dollar demand from commodity and energy sector importers outweighing the supply of dollars from exporters.

On a YTD basis, the shilling has depreciated by 0.3 percent against the dollar, in comparison to the 7.7 percent depreciation recorded in 2020.

Pressure on the shilling will continue 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 0.2 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 will also impact the performance of the shilling. 

The demand from energy importers as they beef up their hard currency positions in the prevailing elevated global oil prices.  

The shilling is however expected to be supported by the Forex reserves, currently at USD 9.2 bn (equivalent to 5.6 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.

Rates in the fixed income market have remained relatively stable due to the high liquidity in the money markets, coupled with the discipline by the government as they reject expensive bids.

The government is 62.6 percent ahead of its prorated borrowing target of 101.3 billion shillings having borrowed 164.7 billion shillings in FY’2021/2022.

Read More: Shilling Sheds 0.2% To End The Week At Ksh 109.9 To The Dollar