The Kenyan shilling has continued receiving the heat from the US Dollar as economies continue to struggle in the face of a pandemic as and as demand for the dollar continues to mount.
The Kenya Shilling depreciated by 0.2 percent against the US Dollar last week to close at 108.2, from 108.0, recorded the previous week, due to end-month importer dollar demand amidst lackluster inflows.
On a YTD basis, the shilling has depreciated by 6.8 percent against the dollar, in comparison to the 0.5 percent appreciation in 2019.
Pressure on the shilling will continue coming from the demand from merchandise and energy sector importers as they beef up their hard currency positions.
There is a deteriorating current account position, with the current account deficit deteriorating by 10.2 percent during Q1’2020, to 110.9 billion shillings from 100.6 billion shillings recorded in Q1’2019.
Support for the shilling will come from the high levels of forex reserves, currently at USD 8.9 million 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.
There is also a relatively strong Diaspora remittance that Increased to USD 277.0 million in July compared to USD 225 million in July 2019 though lower than the USD 288.5 million in June 2020.
Rates in the fixed income market have remained relatively stable due to the high liquidity in the money markets, coupled with the discipline by the Central Bank as they reject expensive bids.
The government is 89.9% ahead of its prorated borrowing target of Kshs 93.5 bn having borrowed Kshs 177.5 bn.