During the month of May, the Kenyan Shilling depreciated by 1.9 percent against the US Dollar, to close the month at 138.5 shillings, from Kshs 135.9 shillings recorded at the end of April 2023.
The depreciation 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 money.
During the week, the Kenya Shilling depreciated by 0.3 percent against the US dollar to close the week at 138.6 shillings, from 138.3 shillings recorded the previous week, partly attributable to increased dollar demand from importers.
On a year-to-date basis, the shilling has depreciated by 12.3 percent against the dollar, adding to the 9.0 percent depreciation recorded in 2022.
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Pressure on the Kenyan shilling will continue coming from the high global crude oil prices on the back of persistent supply chain bottlenecks coupled with increased demand.
Pressure will also manage from the ever-present current account deficit estimated at 4.9 percent of GDP in twelve months to January 2023, from 5.6 percent recorded in a similar period last year.
The need for Government debt servicing continues to put pressure on forex reserves given that 67.3 percent of Kenya’s External debt was US Dollar denominated as of March 2023, hence more pressure on the Kenyan shilling.
The shilling is however expected to be supported by the diaspora remittances that stood at a cumulative USD 1,335.9 mn in 2023 as of April 2023, albeit 3.1 percent lower than the USD 1,378.9 mn recorded over the same period in 2022.
The tourism inflow receipts came in at USD 268.1 bn in 2022, a significant 82.9 percent increase from USD 146.5 bn inflow receipts recorded in 2021, and will support the Kenyan shilling.
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Key to note, Kenya’s forex reserves increased by 0.5 percent during the week to remain relatively unchanged at USD 6.5 bn as of 31 May 2023.
As such, the country’s months of import cover also remained relatively unchanged at 3.6 months, similar to what was recorded the previous week, and remained below the statutory requirement of maintaining at least 4.0 months of import cover.
Key to note, upon the receipt of the USD 1.0 bn loan facility from the World Bank, the forex reserve months of import cover is expected to increase to 4.2 months from the current 3.6 months.
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