The Kenyan shilling closed KSh 107.35 per US dollar on Friday versus Thursday’s close 107.40.
The currency exchanged at KSh 107.35 per US dollar on July 16 compared to KSh 106.96 per US dollar on July 9 according to the Central Bank of Kenya.
“The Kenya Shilling weakened against major international and regional currencies during the week ending July 16, on account of unevenly matched demand and supply of dollars in the interbank market,” said the CBK in its weekly bulletin.
If the currency continues to weaken, merchandise importers will have to pay a higher price for their commodities which will be passed on to the final consumer.
Genghis Capital in 3Q20 Kenya Macro-Economic & Fixed Income Outlook, projects the KES to remain steady at current levels (106.5 average in 2Q20) but with a downward bias (end 3Q20 at 107.5).
The shilling is however expected to be supported by the current high levels of forex reserves, currently at USD 9,699 million (5.87 months of import cover) as at July 16.
“This meets the CBK’s statutory requirement to endeavor to maintain at least 4 months of import cover, and the EAC region’s convergence criteria of 4.5 months of import cover,” says CBK.
“Nonetheless, we think that with a dip in robust export flow and the dry-up in tourism earnings translates to a knock on reserves,” observes Genghis Capital.
Adding that, “Another pressure point on the domestic unit that we would like to highlight is the gradual build-up in foreign-currency deposits (+16.4% y/y to Ksh 671.5Bn) in the banking sector attributed to hard-currency accumulation in a highly uncertain environment.”
The CBK’s next meeting of the Monetary Policy Committee (MPC) will be held on July 29.