Shilling hits low of 110 against USD
The shilling dropped to a record low of 110.05 yesterday as demand for the US dollar (USD) by importers heightened towards the festive season.
The local currency which has been on a downwards trend since the first coronavirus case was reported in March 2020 closed at 109.96 Friday last week.
Analysts predict that the shilling will remain under pressure, trading at between Sh107. 5 and Sh110ß against the dollar, in the short term.
At the start of 2020, the shilling was exchanging at Sh101.4 against the dollar but as Covid-19 weighed down on the economy, it has since depreciated by 8.4 per cent to close at Sh109.9 on Friday last week.
Appreciation of dollar
Analysts at Cytonn Investment say the recent performance of the shilling has been affected by the pandemic shocks creating uncertainty that increases the demand for dollars globally.
People now prefer holding dollars and other hard currencies, a situation that has led to pilling pressure on the shilling, despite intervention by the Central Bank of Kenya (CBK).
The dollar appreciated by 6.8 per cent in the first quarter of 2020 against other currencies in the world.
Though the gains have since been reversed the Dollar remains strong especially against currencies from emerging economies such as Kenya.
Dwindling forex reserves, after a decline in inflows from supporting sectors like tourism, currently stand at $7.9 billion (Sh86.9 billion), equivalent to 4.9 months of import cover.
This has been mitigated by the resilient diaspora remittance inflows, with a 17.3 per cent year on year increase to $263.1 million (Sh28.9 billion) in October 2020, from $224.3 million (Sh24.6 billion) recorded over the same period in 2019. This has cautioned the shilling against further depreciation.
However, Cytonn expects the shilling to be cushioned after the government agreed a $2.3 billion (Sh253 billion) credit drawdown facility with the International Monetary Fund (IMF), with Kenya targeting an initial disbursement of about $725 million (Sh79.8 billion) in this fiscal year.
“The facility will be a welcome relief to the currency as it will aid in boosting the forex reserves and help improve market sentiments,” says Cytonn Investment.
The IMF recently completed a mission to Kenya identifying that the country has suffered unprecedented shock from the pandemic.
The virtual discussions with authorities zeroed in on a program to support the next phase of their Covid-19 response.
The shilling dropped to a record low of 110.05 yesterday as demand for the US dollar (USD) by importers heightened towards the festive season.
The local currency which has been on a downwards trend since the first coronavirus case was reported in March 2020 closed at 109.96 Friday last week.
Analysts predict that the shilling will remain under pressure, trading at between Sh107. 5 and Sh110ß against the dollar, in the short term.
At the start of 2020, the shilling was exchanging at Sh101.4 against the dollar but as Covid-19 weighed down on the economy, it has since depreciated by 8.4 per cent to close at Sh109.9 on Friday last week.
Appreciation of dollar
Analysts at Cytonn Investment say the recent performance of the shilling has been affected by the pandemic shocks creating uncertainty that increases the demand for dollars globally.
People now prefer holding dollars and other hard currencies, a situation that has led to pilling pressure on the shilling, despite intervention by the Central Bank of Kenya (CBK).
The dollar appreciated by 6.8 per cent in the first quarter of 2020 against other currencies in the world.
Though the gains have since been reversed the Dollar remains strong especially against currencies from emerging economies such as Kenya.
Dwindling forex reserves, after a decline in inflows from supporting sectors like tourism, currently stand at $7.9 billion (Sh86.9 billion), equivalent to 4.9 months of import cover.
This has been mitigated by the resilient diaspora remittance inflows, with a 17.3 per cent year on year increase to $263.1 million (Sh28.9 billion) in October 2020, from $224.3 million (Sh24.6 billion) recorded over the same period in 2019. This has cautioned the shilling against further depreciation.
However, Cytonn expects the shilling to be cushioned after the government agreed a $2.3 billion (Sh253 billion) credit drawdown facility with the International Monetary Fund (IMF), with Kenya targeting an initial disbursement of about $725 million (Sh79.8 billion) in this fiscal year.
“The facility will be a welcome relief to the currency as it will aid in boosting the forex reserves and help improve market sentiments,” says Cytonn Investment.
The IMF recently completed a mission to Kenya identifying that the country has suffered unprecedented shock from the pandemic.
The virtual discussions with authorities zeroed in on a program to support the next phase of their Covid-19 response.
