Kenyan Shilling Lost 2% In February, Falling To The Lowest In History

During the month, the Kenya Shilling depreciated by 2.0 percent against the US Dollar, to close the month at 126.9 shillings, from 124.4 shillings recorded at the end of January 2023.

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

Also during the week, the Kenya Shilling depreciated by 0.9 percent against the US dollar to close the week at 127.5, from 126.4 shillings recorded the previous week, 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 3.3 percent against the dollar, adding to the 9.0 percent depreciation recorded in 2022.

Pressure on the shilling is expected to come from the high global crude oil prices on the back of persistent supply chain bottlenecks coupled with high demand.

At the same time, the ever-present current account deficit estimated at 4.9 percent of GDP in 2022, despite improving by 0.3 percentage points from 5.2 percent recorded in 2021 will pile pressure on the shilling.

The need for Government debt servicing continues to put pressure on forex reserves given that 69.3 percent of Kenya’s External debt was US Dollar denominated as of October 2022.

The shilling is however expected to be supported by improving diaspora remittances standing at USD 349.4 mn as of January 2023, representing a 3.2 percent y/y increase from USD 338.7 mn recorded in a similar period in 2022.

Key to note, Kenya’s forex reserves declined by 5.2 percent to stand at USD 6.6 bn as of 2nd March 2023 from USD 7.0 bn recorded as of 2nd February 2023.

As such, the country’s months of import cover dropped to 3.7 months from 3.9 months recorded the previous month, which is below the statutory requirement of maintaining at least 4.0 months of import cover. Standing at USD 6.6 bn as of 2nd March 2023, it translates to a 3.7% decline from USD 6.9 bn recorded the previous week.

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