The Kenyan shilling depreciated by 0.1 percent against the US dollar to close the week at 108.7 shillings, from 108.6 recorded the previous week. The local currency is, however, still resilient against the dollar.
The slight depreciation according to this week’s Cytonn Report, was mainly due to dollar demand from commodity importers outweighing the supply of dollars from exporters.
On a YTD basis, the shilling has appreciated by 0.4 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.
The shilling will be pressured following 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.
At the same time, the widened current account position which increased by 0.2percentage 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 pile pressure on the local currency.
Read More: Kenyan Shilling drops further against the US Dollar by 0.51%
The demand from merchandise traders as they beef up their hard currency positions in anticipation of more trading partners reopening their economies globally will continue hitting the 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.
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.
Read More: Kenyan Shilling Depreciates Against The Dollar at 103.6 During The Week