The Kenyan shilling depreciated against the United States dollar by 0.2 percent to close the week at Ksh.107.9, from Ksh.107.7 recorded the previous week.
The slight dip in the shilling was mainly due to high dollar demand from commodity importers outweighing the supply of dollars from exporters.
On a Year To Date, the shilling has appreciated by 1.2 percent against the dollar in comparison to the 7.7 percent depreciation recorded in 2020.
“Despite the recent appreciation, we expect the shilling to remain under pressure in 2021,” said the report by Cytonn Investments.
Pressure for the Kenyan shilling will come from the rising uncertainties in the global market due to the Coronavirus pandemic.
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Pressure on the local currency will also come from the demand from merchandise traders as they beef up their hard currency positions in anticipation of more trading partners reopening their economies globally.
“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.”
In the report, the shilling is expected to be supported by the Forex reserves, currently at Ksh.809.1 billion (equivalent to 4.6-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.
The shilling will also sail through following the support from the stable current account position that is estimated to remain at a deficit of 5.2 percent of Gross Domestic Product (GDP) in 2021,
Improving diaspora remittances evidenced by a 43.8 percent year to year increase to Ksh.32.2 billion April 2021, from Ksh.22.4 billion recorded over the same period in 2020, which have cushioned the shilling against further depreciation.
