Kenya Shilling Depreciates in April Amid Increased Dollar Demand from Oil, Merchandise Importers – Tuko.co.ke
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The Kenya shilling depreciated by 0.7% against the US dollar in April 2022 to close at KSh 115.8, from KSh 115.0 recorded at the end of March 2022.
A report by Cytonn Investments said increased dollar demand from oil and merchandise importers drove the depreciation on the back of increased global oil prices against slower recovery in exports and the tourism sector.
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On a weekly basis, the Kenyan shilling depreciated marginally by 0.2% against the US dollar to close the week at KSh 115.8, from KSh 115.6 recorded the previous week, partly attributable to increased dollar demand from the oil and energy sectors.
The firm noted that the drop was the lowest that the Kenyan shilling has ever depreciated against the dollar.
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On a year to date basis, the shilling has depreciated by 2.3% against the dollar compared to the 3.6% depreciation recorded in 2021.
The firm said it expects the shilling to remain under pressure for the rest of the year because of several factors, among them rising global crude oil prices.
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At the same time, the firm noted that the shilling would continue to depreciate amid increased demand from merchandise traders as they beef up their challenging currency positions in anticipation of more trading partners reopening their economies globally.
Another factor that would likely lead to the depreciation of the Kenyan shilling is the ever-present current account deficit due to an imbalance between imports and exports, with Kenya’s current account deficit estimated to come in at 5.6% of GDP in the 12 months to February 2022 compared to the 4.3% for a similar period in 2021.
The shilling is also likely to depreciate due to the growing government debt.
According to the firm, Kenya’s public debt increased at a 10-year CAGR of 18.6% to KSh 8.2 trillion in December 2021, from KSh 1.5 trillion in December 2011, thus putting pressure on forex reserves to service some of the public debt.
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However, several factors are likely to support the shilling. These include high forex reserves, currently at USD 8.4 billion, equivalent to 5.0-months of import cover, which is above the statutory requirement of maintaining at least 4.0-months of import cover.
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Source: TUKO.co.ke
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