The Kenyan shilling has slumped to its lowest levels since September 2015 as investors continue to react with alarm to the coronavirus pandemic.
The shilling was selling 105.0971 against the US dollar, 122.0418 against the Sterling Pound and 113.4438 to the Euro on Friday according to Central Bank Indicative Exchange Rates.
This was down from 105.50/70 at Thursday’s close.
Patrick Mumu, an Analyst at Genghis Capital, the shilling has depreciated circa 2.2% against the dollar since the last MPC meeting on the back of fears surrounding the impact of Coronavirus on the economy, impacting tourism and potentially the healthy diaspora remittances and capital inflows from foreign funds.
Forex reserves have declined by USD 83Mn to USD 8.4Bn (5.11 months of import cover) since the January 2020 MPC meeting but continue to present an adequate cushion for the local unit in the short term and are adequate cover against external debt obligations (c. USD 3.1Bn) in 2020.
For Cytonn Investments, “The high demand for the dollar from foreigners exiting the market is also likely to cause the depreciation of the shilling, which we anticipate could be a 2.4% decline in the value of the shilling.”
NCBA Research on the other hand project that the currency may eye 104 this quarter due to the mounting uncertainty.
“The central bank’s move to increase its reserves could aggravate the selloff although the prospect of a standby facility with the IMF may help,” it notes.
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But, reduced export earnings as markets shut, reduced remittances due to weakening labor markets and weaker capital inflows may hurt supply but possible donor support could limit the bleeding.
The Central Bank of Kenya’s monetary policy committee may cut the benchmark rate at its meeting on Monday, according to Genghis. “While the MPC will be keen to maintain price stability with inflation and currency under pressure, growth prospects are waning and we believe this will be the focus of discussion.”
