Will The Shilling Be Back After Elections Or We Continue Blaming The Dollar? – Soko Directory Team
The Kenyan shilling depreciated by 0.2% against the US dollar to close the week at Kshs 119.1, from Kshs 118.8 recorded the previous week.
Improving diaspora remittances are evidenced by a 6.6% y/y increase to USD 326.1 mn as of June 2022, from USD 305.9 mn recorded over the same period in 2021, which has continued to cushion the shilling against a faster depreciation.
During the week, the Kenyan shilling depreciated by 0.2% against the US dollar to close the week at Kshs 119.1, from Kshs 118.8 recorded the previous week.
The further depreciation was partly attributable to increased dollar demand from the oil and energy sectors against a slower supply of hard currency.
On a year-to-date basis, the shilling has depreciated by 5.3% against the dollar, higher than the 3.6% depreciation recorded in 2021.
Pressure on the shilling:
High global crude oil prices are on the back of persistent supply chain bottlenecks are further exacerbated by the Russian-Ukrainian geopolitical pressures at a time when demand is picking up with the easing of COVID-19 restrictions and as economies continue to recover.
Increased demand from merchandise traders as they beef up their hard currency positions in anticipation of increased demand as economies gradually recover.
An ever-present current account deficit due to an imbalance between imports and exports, with Kenya’s current account deficit, estimated to come in at 5.3% of GDP in the 12 months to May 2022 compared to the 5.0% for a similar period in 2021.
The wider deficit reflects a higher import bill, particularly for petroleum products, with the imports for Q1’2022 increasing by 14.5%, 5.7% points higher than the 8.8% increase in exports.
The aggressively growing government debt, with Kenya’s public debt, has increased at a 10-year CAGR of 18.2% to Kshs 8.6 trillion in May 2022, from Kshs 1.6 trillion in May 2012 thus putting pressure on forex reserves to service some of the public debt.
Support for the shilling:
High Forex reserves are currently at USD 7.7 bn (equivalent to 4.5-months of import cover), which is above the statutory requirement of maintaining at least 4.0-months of import cover, and the EAC region’s convergence criteria of 4.5-months of import cover.
Improving diaspora remittances are evidenced by a 6.6% y/y increase to USD 326.1 mn as of June 2022, from USD 305.9 mn recorded over the same period in 2021, which has continued to cushion the shilling against a faster depreciation.
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