Shilling faces year-end pressure

The Kenyan shilling is expected to remain under pressure for the remainder of the year amidst a heightened demand for dollars, especially by traders.

As such, analysts expect the shilling to trade and even deeper historical lows by the end of 2021 with the weakening being mainly attributed to dollar demand from manufacturing sector and general goods importers.

“We expect sustained pressure on the shilling in the weeks ahead as retail and wholesale dollar purchasers rush to meet their year-end obligations,” said Terry Karanja, a Treasury Associate at currency broker AZA Finance.

The local unit is already trading at historical lows against the US dollar since the start of November.

Uncertainties at the global marketplace and a widening current account deficit have previously been traced as factors contributing to the weakening of the Kenya shilling.

The Central Bank of Kenya (CBK) quoted the shilling at Ksh.112.88 against the US dollar at the close of trading on Thursday, while the local unit opened to an even lower valuation of Ksh.112.93 on Friday.

Despite concerns on the gradual weakening of the unit, the CBK has stated that the shilling is not out of line with other currencies, some of which such as the Turkish Lira and South African rand have marked an even sharper fall in value against the green buck.

In the year to date, the shilling has shed 3.4 per cent of its value against the dollar.

While attributing the weakening to a stronger dollar, CBK Governor Patrick Njoroge has retaliated that the reserve bank continues to monitor the unit to minimise instances of volatility.

“At the end of the day, our exchange rate policy has not changed and ours is really a flexible exchange rate regime and we intervene just to minimise volatility but we do not set a direction or level. We allow the markets to push the exchange rate, strengthen and weaken it, as long as there is no volatility,” he said on November 30.

During the week, the CBK sold an unspecified amount of dollars in the market to contain the weakness.

CBK’s usable foreign exchange reserves fell by Ksh.4.1 billion ($36 million) in the week to December 2 but the cover remains sufficient, representing a 5.34 months import cover.
The dollar denominated cover is expected to be boosted by proceeds from a third-tranche loan by the International Monetary Fund (IMF) which is set to wire Ksh.29.8 billion ($264 million) later this month.