The Kenyan shilling remained stable against the US dollar closing at Ksh.108.0 at the close of last week, the same as was recorded the previous week, as the demand for the dollar matched its supply in the local currency market.
On a Year to Date basis, the shilling has appreciated by 1.1 percent against the dollar in comparison to the 7.7 percent depreciation recorded in 2020.
“Despite the recent appreciation of the shilling, we expect the shilling to remain under pressure in 2021,” said Cytonn Investments in its report.
According to Cytonn, the shilling remains volatile on counts of 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 will also be under pressure due to the demand from merchandise traders as they beef up their hard currency positions in anticipation of more trading partners reopening their economies globally.
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Despite the two conditions, the report says the shilling is expected to be supported by the Forex reserves, currently at Ksh.1 trillion (US$.9.6 billion-equivalent to 5.9 months of import cover), which is above the statutory requirement of maintaining at least 4-months of import cover, and the East Africa Community (EAC) region’s convergence criteria of 4.5-months of import cover.
At the same time, the stable current account position is estimated to remain at a deficit of 5.2 percent of GDP in 2021.
The improving diaspora remittances evidenced by a 22.3 percent year to year increase to Ksh.34 billion (US$.315.8 million) in May 2021, from Ksh.27.8 billion (US$.258.2 million) recorded over the same period in 2020, which has continued to cushion the shilling against further depreciation.
The Kenyan shilling has remained resilient against the US Dollar despite the effects of coronavirus pandemic that has continued to sweep around the world.
Analysts had projected the shilling to tumble but has remained strong as the year moves towards the end.