The Kenya Shilling appreciated by 0.2 percent against the US Dollar during the month of May to close the month at Ksh.107.60 from Ksh.107.8 recorded at the end of April 2021.
According to a report by Cytonn Investments, this was attributed mostly to the dull dollar demand from general importers.
On a Year to Date (YTD) basis, the Kenyan Shilling has appreciated by 1.3 percent against the U.S. Dollar in comparison to the 7.7 percent depreciation recorded in 2020.
Despite the recent appreciation of the shilling, the Kenyan currency is expected to remain under pressure in 2021.
“The pressure will be as a result 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,” says the Cytonn report.
The uncertainty will also be due to demand from merchandise traders as they beef up their hard currency positions in anticipation for more trading partners reopening their economies globally,
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Last week, the Shilling depreciated against the US dollar by 0.2 percent to close the week at Ksh.107.7, from Ksh.107.6 recorded the previous week, mainly due to dollar demand from commodity importers outweighing the supply of dollars from exporters.
However, the Kenyan Shilling is expected to be strengthened by the improved forex reserves, currently at US$.7.5 billion (equivalent to 4.6-months of import cover), which is above the statutory requirement of maintaining at least 4.0-months of import cover, and the Eat Africa Community (EAC) region’s convergence criteria of 4.5-months of import cover.
The strength of the shilling will also be anchored on a stable current account position, which is estimated to be at a deficit of 5.2 percent of Gross Domestic Product (GDP) in the 12 months to April 2021 and is projected to remain at the same level in 2021.
Improving diaspora remittances evidenced by a 43.8 percent year-to-year increase to US$.299.3 million (KSh. 32.3 billion) in April 2021, from US$.208.2 million (Ksh. 22.4 billion) recorded over the same period in 2020, which has cushioned the shilling against further depreciation.
