Kenyan Shilling Falls Further, Ends The Week At Ksh 122

The Kenyan shilling depreciated by 0.2 percent against the US dollar to close the week at 122.0 shillings from 121.8 shillings recorded the previous week.

The performance of the local currency last week was partly attributable to increased dollar demand from importers, especially oil and energy sectors against a slower supply of hard currency.

On a year-to-date basis, the shilling has depreciated by 7.9 percent against the dollar, higher than the 3.6 percent depreciation recorded in 2021.

Pressure on the Kenya shilling will continue coming from the high global crude oil prices on the back of persistent supply chain bottlenecks coupled with high demand.

Pressure will also come from an ever-present current account deficit estimated at 5.3 percent of GDP in the 12 months to September 2022, the same as what was recorded in a similar period in 2021.

The need for Government debt servicing continues to put pressure on forex reserves given that 68.1 percent of Kenya’s External debt was US Dollar denominated as of July 2022, and will pile more pressure on the shilling.

A continued hike in the US Fed interest rates in 2022 to a range of 3.75-4.00 percent in November 2022 has strengthened the dollar against other currencies by causing capital outflows from other global emerging markets.

The shilling is however expected to be supported by improved diaspora remittances standing at a cumulative USD 4.0 bn as of October 2022, representing an 11.1% y/y increase from USD 3.6 bn recorded over the same period in 2021.

Sufficient Forex reserves currently at USD 7.2 bn (equivalent to 4.0 months of import cover), which is currently at par with the statutory requirement of maintaining at least 4.0-months of import cover, however, it’s important to note that Forex reserves have dropped by 22.2 percent YTD from USD 8.8 bn. The chart below summarizes the evolution of Kenya’s months of import cover over the last 10 years.

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