Shilling Sinks Deeper, Hits The Lowest In History – Soko Directory Team
Improving diaspora remittances is evidenced by a 7.6 percent y/y increase to USD 339.7 mn as of May 2022, from USD 315.8 mn recorded over the same period in 2021 which has continued to cushion the shilling against further depreciation.
On a year-to-date basis, the shilling has depreciated by 4.4 percent against the dollar, in comparison to the 3.6 percent depreciation recorded in 2021.
During the week, the Kenyan shilling depreciated by 0.2 percent against the US dollar to close the week at 118.1 shillings from 117.9 shillings recorded the previous week, partly attributable to increased dollar demand from the oil and energy sectors.
Key to note, this is the lowest the Kenyan shilling has ever depreciated against the dollar. On a year-to-date basis, the shilling has depreciated by 4.4 percent against the dollar, in comparison to the 3.6 percent depreciation recorded in 2021.
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Pressure on the shilling will come from:
The continued rise in global crude oil prices on the back of persistent supply chain bottlenecks is further exacerbated by the Russian-Ukrainian geopolitical pressures at a time when demand is picking up with the easing of COVID-19 restrictions and as economies reopen will hurt the shilling.
Increased demand from merchandise traders as they beef up their hard currency positions in anticipation of more trading partners reopening their economies globally will pile pressure on the shilling.
An ever-present current account deficit due to an imbalance between imports and exports, with Kenya’s current account deficit, estimated to come in at 5.3 percent of GDP in the 12 months to May 2022 compared to the 5.0 percent for a similar period in 2021.
The aggressively growing government debt, with Kenya’s public debt, has increased at a 10-year CAGR of 19.8% to 8.5 trillion shillings in April 2022, from 1.4 trillion shillings in April 2011 thus putting pressure on forex reserves to service some of the public debt.
The shilling is however expected to be supported by:
High Forex reserves are currently at USD 8.0 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.
Improving diaspora remittances is evidenced by a 7.6 percent y/y increase to USD 339.7 mn as of May 2022, from USD 315.8 mn recorded over the same period in 2021 which has continued to cushion the shilling against further depreciation.
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