Kenyan Shilling Falls 1.1 Percent Against The US Dollar
During the week, the Kenyan shilling depreciated against the US dollar by 1.1 percent to close at 108.2 shillings, from 107.0 shillings recorded the previous week.
The depreciation of the local currency was mainly attributable to the build-up of dollar demand ahead of the end of the month when firms typically meet their hard currency obligations.
On a YTD basis, the shilling has appreciated by 0.5 percent against the dollar, in comparison to the 7.7 percent depreciation recorded in 2020.
Experts from Cytonn Investments say that they expect the local currency to remain under pressure in 2021, predicting no breathing space for the shilling.
Pressure on the shilling will come from the rising uncertainties in the global market due to the Coronavirus pandemic, which has seen investors continue to prefer holding their investments in dollars and other hard currencies and commodities.
The shilling is also being hit by the demand from merchandise traders as they beef up their hard currency positions in anticipation of more trading partners reopening their economies globally.
There is still hope for the shilling though.
Cytonn says the shilling will be supported by the Forex reserves, currently at USD 7.5 bn (equivalent to 4.6-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 current account position which narrowed to 4.8 percent of GDP in the 12 months to December 2020 compared to 5.8 percent of GDP during a similar period in 2019 will help sustain the shilling
Improving diaspora remittances evidenced by a 43.8 percent y/y increase to USD 299.3 mn in April 2021, from USD 208.2 mn recorded over the same period in 2020, has cushioned the shilling against further depreciation will shield the shilling.