Shilling Sheds 0.3% Against The Dollar As Covid-19 Reigns

Last week, the Kenya Shilling depreciated by 0.3 percent against the US Dollar to close at 106.0 shillings from 105.7 shillings recorded the previous week.

The Kenya Shilling was under pressure due to dollar demand from commercial banks, merchandise, and energy sector importers beefing up their hard currency positions amid economic uncertainty caused by the Coronavirus outbreak amid little foreign exchange inflows to offer support.

“On a YTD basis, the shilling has depreciated by 4.6 percent against the dollar, in comparison to the 0.5 percent appreciation in 2019. We expect depreciation of the shilling in 2020,” says Cytonn Investments.

The shilling is still facing a rocky future due to the rising uncertainties in the global market due to the Coronavirus outbreak, which has seen the disruption of global supply chains.

The shortage of imports from China for instance, which accounts for an estimated 21.0 percent of the country’s imports, is likely to cause local importers to look for alternative import markets, which may be more expensive and as such higher demand for the dollar from merchandise importers.

There is a subdued diaspora remittances growth following the close of the 10.0 percent tax amnesty window in July 2019.

“We also foresee reduced diaspora remittances, owing to the decline in economic activities globally hence a reduction in disposable incomes,” says Cytonn Investments. This coupled with increased prices of household items abroad might see a reduction in money expatriated into the country.

There is still some hope for the shilling. It is likely to be supported by the high levels of forex reserves, currently at USD 8.0 million (equivalent to 4.8-months of import cover), 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.

The Central Bank of Kenya (CBK) has remained supportive of its activities in the money markets, with the Central Bank of Kenya (CBK) having already indicated that it’s looking to purchase USD 400.0 million from banks for four months beginning from March to bolster the forex reserves.

READ: Kenyan Shilling Slightly Dips But Still Resilient Against The Dollar