The Kenyan shilling depreciated marginally by 0.2 percent last week against the US dollar to close the week at Ksh.110.1 from Ksh.109.9 recorded the previous week.
Shilling depreciation can be attributed to high dollar demand from the energy sector.
According to the Cytonn report, the shilling has depreciated by 0.8 percent against the dollar on year-to-date basis (YTD), in comparison to the 7.7 percent depreciation recorded in 2020.
“We expect the shilling to remain under pressure for the remainder of 2021,” said experts from Cytonn Investments.
The shilling will continue feeling the pressure due to demand from energy importers as they beef up their hard currency positions in the prevailing elevated global oil prices.
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Another factor which will see a shilling hard-pressed is rising uncertainties in the global market caused by the Coronavirus pandemic. This factor has seen investors continue to prefer holding their investments in dollars and other hard currencies and commodities.
Besides, the widened current account position which increased by 0.5 percentage points to 5.4 percent of Gross Domestic Product (GDP) in the 12 months to August 2021, from 4.9 percent of GDP for a similar period in 2020 will continue hitting the shilling.
However, forex reserves, currently at Ksh.1 trillion (USD 9.6 billion) (equivalent to 5.9 months of import cover) has been touted a support base for the shilling, which is above the statutory requirement of maintaining at least 4.0 months of import cover, and the East Africa Community (EAC) region’s convergence criteria of 4.5-months of import cover.
Improving diaspora remittances evidenced by a 14.2 percent y/y increase to Ksh.34.4 billion (USD 312.9 million) in August 2021, from USD 274.1 million recorded over the same period in 2020, has continued to cushion the shilling against further depreciation.