Kenyan Shilling Still On The Receiving End From The Dollar

The Kenyan shilling appreciated marginally by 0.1 percent against the US dollar to close the week at 109.9 shillings from 110.0 shillings recorded the previous week, mainly attributable to the lackluster dollar demand from general importers.

On a YTD basis, the shilling has depreciated by 0.6 percent against the dollar, in comparison to the 7.7 percent depreciation recorded in 2020.

“We expect the shilling to remain under pressure for the remainder of 2021,” said experts from Cytonn Investments.

Pressure on the shilling will continue coming from the rising uncertainties in the global market due to the Coronavirus which has seen investors continue to prefer holding their investments in dollars and other hard currencies and commodities.

At the same time, the widened current account position increased by 0.5 percentage points to 5.4 percent of GDP in the 12 months to August 2021 from 4.9 percent of GDP for a similar period in 2020.

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The demand from energy importers as they beef up their hard currency positions in the prevailing elevated global oil prices will also continue piling pressure on the local currency.

The shilling is however expected to be supported by the Forex reserves, currently at USD 9.6 bn (equivalent to 5.9 months of import cover), which is 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 Improving diaspora remittances evidenced by a 21.6% y/y increase to USD 336.7 mn in July 2021, from USD 277.0 mn recorded over the same period in 2020, which has continued to cushion the shilling against further depreciation.

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At the same time, during the week, the yields on all Eurobonds increased, with the yields on the 30-year bond issued in 2018, the 10-year bond issued in 2018, the 7-year bond issued in 2019, and the 12-year bond issued in 2019 all increasing by 10.0 bps to close the week at 7.2, 5.0, 4.7, and 6.1 percent respectively.

The 12-year bond issued in 2021 and the 10-year bond issued in 2014 both increased by 20.0 bps to close the week at 6.1 percent and 3.3 percent, respectively.