The Kenya Shilling depreciated against the US Dollar by 0.8 percent last week to close at 131.4 shillings from 130.4 shillings recorded the previous week.
On a year-to-date basis, the shilling has appreciated by 16.3 percent against the dollar, in contrast to the 26.8 percent depreciation in 2023.
Pressure on the shilling will continue coming from an ever-present current account deficit which came at 3.5 of GDP in Q3’2023 from 6.4% recorded in a similar period in 2022.
The need for government debt servicing continues to put pressure on forex reserves given that 67.5% of Kenya’s external debt was US dollar-denominated as of September 2023.
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Dwindling forex reserves, currently at USD 7.2 million (equivalent to 3.8 months of import cover), which is below the statutory requirement of maintaining at least 4.0 months of import cover.
The shilling is however expected to be supported by diaspora remittances stood at a cumulative USD 4,380.5 mn in the 12 months to March 2024, 9.0% higher than the USD 4,019.6 mn recorded over the same period in 2023, which has continued to cushion the shilling against further depreciation. In the March 2024 diaspora remittances figures, North America remained the largest source of remittances to Kenya accounting for 56.2% in the period.
Support will also come from the tourism inflow receipts which came in at USD 352.5 bn in 2023, a 31.5% increase from USD 268.1 bn inflow receipts recorded in 2022, and owing to tourist arrivals that improved by 27.6% to 182,000 in the 12 months to January 2024, from 151,000 recorded during a similar period in 2023.
Key to note, Kenya’s forex reserves declined by 0.9% during the week to USD 7.2 bn from USD 7.3 bn recorded the previous week, equivalent to 3.8 months of import cover same as the previous week, and remained below the statutory requirement of maintaining at least 4.0-months of import cover.
Data from Cytonn Report.
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