Kenyan Shilling Performs Dismally During The Week

The Kenyan shilling depreciated marginally by 0.2 percent against the US dollar to close the week at 112.4 shillings from 112.2 shillings recorded the previous week.

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

This is the lowest the Kenyan shilling has ever depreciated against the dollar. On a YTD basis, the shilling has depreciated by 2.9 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 will continue coming 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.

There is an increased demand from merchandise traders as they beef up their hard currency positions in anticipation of more trading partners reopening their economies globally that will continue piling pressure on the shilling.

At the same time, the rising global crude oil prices are on the back of supply constraints at a time when demand is picking up with the easing of COVID-19 restrictions and as economies reopen will hit the local currency.

The shilling will be supported by the Forex reserves, currently at USD 8.8 billion 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.

In addition, the reserves were boosted by the USD 1.0 bn proceeds from the Eurobond issued in July 2021 coupled with the USD 407.0 mn IMF disbursement and the USD 130.0 mn World Bank loan financing received in June 2021.

Improving diaspora remittances evidenced by a 28.2% y/y increase to USD 337.4 mn in October 2021, from USD 263.1 mn recorded over the same period in 2020, which has continued to cushion the shilling against further depreciation.