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Kenya Shilling depreciated by 2.4% against dollar in Q3

Kenya Shilling dropped 2.4 against dollar in Q3

The Kenya Shilling depreciated against the US Dollar by 2.4 percent in Q3’2021, to close at Ksh.110.5, from Ksh.107.9 in Q2 of 2021, marking a 9-months low.

According to Cytonn Investment report, the depreciation is partly attributable to increased import activities by local traders as well as increased dollar demand across various sectors including energy amidst weak inflows.

During the week, the Kenya Shilling depreciated marginally against the US Dollar by 0.1 percent to close at Ksh.110.5, from Ksh.110.4 the previous week.

Pressure on the shilling will continue coming from the “rising uncertainties in the global market due to the COVID-19, which has seen investors continue to prefer holding their investments in dollars and other hard currencies and commodities.” Reads the report.

At the same time, the 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.

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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 will also affect the shilling.

The shilling is, however, expected to be supported by the Forex reserves, currently at Ksh.1 trillion (USD 9.4 billion) (equivalent to 5.8-months of import cover), which is above the statutory requirement of maintaining at least 4.0-months of import cover, and the East Africa Community region’s convergence criteria of 4.5-months of import cover.

In addition, the reserves were boosted by the Ksh.110.5 billion (USD 1.0 billion) proceeds from the Eurobond issued in July 2021 coupled with the USD 407.0 million IMF disbursement and the USD 130.0 mn World Bank loan financing received in June 2021.

The improving diaspora remittances evidenced by a 14.2 percent y/y increase to Ksh.34.5 billion (USD 312.9 mn) in August 2021, from USD 274.1 mn recorded over the same period in 2020, which has continued to cushion the shilling against further depreciation.

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Lawrence Baraza is a prolific writer with competencies in Digital Media, Print, and Broadcast. Baraza is also a Communication Practitioner currently spearheading Digital content on Metropol TV's Digital Desk.

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