The Kenyan shilling depreciated marginally by 0.2 percent last week against the US dollar to close the week at 110.1 shillings from 109.9 shillings recorded the previous week.
The Kenyan shilling depreciated marginally by 0.2 percent last week against the US dollar to close the week at 110.1 shillings from 109.9 shillings recorded the previous week mainly attributable to increased dollar demand from the energy sector.
On a YTD basis, the shilling has depreciated by 0.8 percent against the dollar, in comparison to the 7.7 percent depreciation recorded in 2020.
“We expect the shilling to remain under pressure for the remainder of 2021,” said experts from Cytonn Investments.
Pressure on the shilling
The rising uncertainties in the global market due to the Coronavirus pandemic, which have seen investors continue to prefer holding their investments in dollars and other hard currencies and commodities. This will pile pressure on the shilling.
The widened current account position which increased by 0.5 percentage points to 5.4 percent of GDP in the 12 months to August 2021, from 4.9 percent of GDP for a similar period in 2020 will continue hitting the shilling.
At the same time, demand from energy importers as they beef up their hard currency positions in the prevailing elevated global oil prices will pressure the local currency too.
Support for the shilling
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.
Improving diaspora remittances evidenced by a 14.2 percent y/y increase to USD 312.9 mn in August 2021, from USD 274.1 mn recorded over the same period in 2020, which has continued to cushion the shilling against further depreciation.