Kenyan Shilling Falls To Ksh 119.9, Lowest In History

By Soko Directory Team / Published August 29, 2022 | 9:12 am

KEY POINTS

Pressure on the shilling will continue coming from the high global crude oil prices on the back of persistent supply chain bottlenecks coupled with high demand as most economies gradually recover.

KEY TAKEAWAYS

The shilling is however expected to be supported by the sufficient Forex reserves are currently at USD 7.6 bn (equivalent to 4.4-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.

During the week, the Kenyan shilling continued to depreciate against the US dollar to close the week at 119.9 shillings, a 0.3 percent depreciation from 119.6 shillings recorded the previous week.

The continuous melting of the shilling was partly attributable to increased dollar demand from the oil and energy sectors against a slower supply of hard currency.

On a year-to-date basis, the shilling has depreciated by 6.0 percent against the dollar, higher than the 3.6 percent depreciation recorded in 2021.

Pressure on the shilling will continue coming from the high global crude oil prices on the back of persistent supply chain bottlenecks coupled with high demand as most economies gradually recover.

An ever-present current account deficit due to an imbalance between imports and exports, with Kenya’s current account deficit estimated at 5.3 percent of GDP in the 12 months to May 2022 compared to the 5.0 percent within a similar period in 2021 will pile pressure on the local currency.

The aggressively growing government debt, with Kenya’s public debt, has increased at a 10-year CAGR of 18.2 percent to 8.6 trillion shillings in May 2022, from 1.6 trillion shillings in May 2012 thus putting pressure on forex reserves to service some of the public debt.

It is worth noting that the average GDP growth over the same period has been 3.9 percent, indicating that the increase in debt is not translating into GDP growth.

Sufficient diaspora remittances are evidenced by a 6.6 percent increase to USD 3,995.0 mn cumulative remittances as of July 2022, compared to USD 3,442.0 mn recorded over the same period in 2021, which has continued to cushion the shilling against a faster depreciation will also support the shilling.

About Soko Directory Team

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