Kenyan Shilling Sheds Off 0.4%, Hits A Historical Low – Soko Directory Team
On a YTD basis, the shilling has depreciated by 0.4 percent against the dollar, in comparison to the 3.6 percent depreciation recorded in 2021.
Pressure on the shilling will come from the increased demand from merchandise traders as they beef up their hard currency positions in anticipation of more trading partners reopening their economies globally.
During the month, the Kenya Shilling depreciated by 0.4 percent against the US Dollar, to close the month at 113.6, from 113.1 shillings recorded at the end of December 2021.
Notably, the shilling hit an all-time low during the month of January, driven by the increased dollar demand from oil and merchandise importers on the back of increased global oil prices against slower recovery in the exports and tourism sector.
During the week, the Kenyan shilling remained relatively stable against the US dollar, closing the week at 113.6 shillings unchanged from the previous week.
“On a YTD basis, the shilling has depreciated by 0.4 percent against the dollar, in comparison to the 3.6 percent depreciation recorded in 2021. We expect the shilling to remain under pressure in 2022,” said Cytonn.
Pressure on the shilling will come from the increased demand from merchandise traders as they beef up their hard currency positions in anticipation of more trading partners reopening their economies globally.
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 5.4 percent of GDP in 2021, having expanded by 27.4 percent in Q3’2021 to 184.6 billion shillings, from Kshs 145.0 bn recorded in Q3’2020.
This was attributed to a robust increase in merchandise imports by 39.6 percent to 321.8 billion shillings in Q3’2021, from 230.5 billion shillings in Q3’2020,
At the same time, the aggressively growing government debt, with Kenya’s public debt has increased at a 10-year CAGR of 18.2 percent to 8.0 trillion shillings in August 2021, from 1.5 trillion shillings in July 2011 thus putting pressure on forex reserves to repay some of the public debt.
The rising global crude oil prices are on the back of supply constraints at a time when demand is picking up with the easing of COVID-19 restrictions and as economies reopen. Key to note, risks abound this global recovery following the emergence of the new COVID-19 variants.
The local currency will be supported by the high Forex reserves, currently at USD 8.2 bn (equivalent to 5.0-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 evidenced by a 17.0 percent y/y increase to USD 350.6 mn in December 2021, from USD 299.6 mn recorded over the same period in 2020, which has continued to cushion the shilling against further depreciation.
Read More: Kenyan Shilling Still On A Free-Fall As 2022 Takes Shape
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