How will the Shilling perform this week?

By Phyllis MUCHOKI

Last week saw the Kenya Shilling depreciate by 0.6% against the US dollar to close the week at Kshs 135.2, from Kshs 134.4 recorded the previous week, partly attributable to increased dollar demand from manufacturers and importers, especially oil and energy sectors against a slower supply of hard currency.

On a year-to-date basis, the shilling has depreciated by 9.5% against the dollar, adding to the 9.0% depreciation recorded in 2022.

Economists however worry that the shilling could weaken even further with many expecting it to hit Ksh.150 to the U.S dollar in the coming months.

They have also asked businesses to tighten their belts as the situation could continue to worsen in the next 24 months.

Over the last six months tracking the movement of the dollar, it peaked at its highest at Ksh.125.77 on February 5, with the lowest exchange rate in the last 6 months being in August last year when the exchange rate was Ksh.119.37 with an average rate of Ksh.122.02 over a six-month period according to data from the Central Bank.

Experts expect the shilling to remain under pressure in 2023 as a result of High global crude oil prices on the back of persistent supply chain constraints coupled with high demand.

The high crude oil prices have inflated Kenya’s import bill and as a result, petroleum products imports have continued to weigh heavily on the country’s import bill, and accounted for 27.6% of the total import bill in Q3’2022, up from 25.6% in Q2’2022 and much higher than 15.2% recorded in Q3’2021.

An ever-present current account deficit estimated at 4.9% of GDP in the 12 months to January 2023, from 5.6% recorded in a similar period last year,

The need for Government debt servicing which continues to put pressure on forex reserves given that 68.1% of Kenya’s External debt was US Dollar denominated as of December 2022, and,

A continued interest rate hikes in the USA and the Euro Area with the Fed and European Central Bank increasing their benchmark rates to 4.75%-5.00% and 3.50% respectively in March 2023, which has strengthened the dollar and sterling pound against other currencies following capital outflows from other global emerging markets.

The shilling is however expected to be supported by diaspora remittances standing at a cumulative USD 1,015.5 mn in 2023 as of March 2023, albeit 0.8% lower than the USD 1,023.8 mn recorded over the same period in 2022, and, the tourism inflow receipts that came in at USD 268.1 bn in 2022, a significant 82.9% increase from USD 146.5 bn inflow receipts recorded in 2021.