Shilling depreciates in November as greenback demand rises


  • The Kenya Shilling depreciated by 0.9% towards the US Greenback to shut the month of November at KSh 122.4, from KSh 121.3 recorded on the finish of October 2022
  • A Cytonn Investments report has partly attributed the depreciation to elevated greenback demand from importers, particularly oil and power sectors, towards a slower provide of onerous foreign money
  • The report stated it expects the Kenya shilling to stay underneath strain for the remainder of the yr owing to a number of elements, equivalent to rising oil costs

The Kenya Shilling depreciated by 0.9% towards the US Greenback to shut the month of November at KSh 122.4, from KSh 121.3 recorded on the finish of October 2022.

A report by Cytonn Investments has partly attributed the depreciation to elevated greenback demand from importers, particularly oil and power sectors, towards a slower provide of onerous foreign money.

As an illustration, within the final week of the month, the Kenyan shilling depreciated by 0.2% towards the US greenback to shut at KSh 122.5, from KSh 122.3 recorded the earlier week. On a year-to-date foundation, the shilling has depreciated by 8.3% towards the greenback, larger than the three.6% depreciation recorded in 2021.

Cytonn stated they count on the Kenya shilling to stay underneath strain for the remainder of the yr owing to a number of elements, equivalent to rising oil costs. “We count on the shilling to stay underneath strain due to excessive international crude oil costs on the again of persistent provide chain bottlenecks coupled with excessive demand,” the agency stated of their weekly report.

Components resulting in the depreciation of the Kenyan shilling

The shilling’s efficiency may also be impacted by an ever-present present account deficit estimated at 5.5% of GDP within the 12 months to October 2022, the identical as what was recorded in the same interval in 2021.

It’s going to even be affected by the necessity for presidency debt servicing, which continues to place strain on foreign exchange reserves on condition that 69.7% of Kenya’s exterior debt was US Greenback denominated as of September 2022.

It’s going to even be affected by a continued hike within the USA Fed rates of interest in 2022 to a spread of three.75%-4.00% in November 2022, which has strengthened the greenback towards different currencies by inflicting capital outflows from different international rising markets.

Components supporting the efficiency of the Kenyan shilling

The report stated it nonetheless expects the Kenya shilling to obtain some assist, largely from improved diaspora remittances that are standing at a cumulative USD 3.3 billion as of October 2022, representing a 9.1% y/y improve from USD 3.1 billion recorded over the identical interval in 2021.

The efficiency of the Kenya shilling may also be supported by ample Foreign exchange reserves, which presently stand at USD 7.1 billion (equal to 4 months of import cowl), which is at par with the statutory requirement of sustaining no less than 4 months of import cowl.

Kenya Shilling depreciates by 0.7pc towards USD in July

“Nevertheless, it’s necessary to notice that Foreign exchange reserves have dropped by 19.8% YTD from USD 8.8 billion,” Cytonn stated.

Kenya shilling depreciates 2022
Nairobi Metropolis. Photograph: Unsplash.

Kenya’s inflation declines marginally

The discovering on the efficiency of the Kenya shilling comes when the nation’s inflation has declined.

In November 2022, the nation’s year-on-year dropped to 9.5%, from the 9.6% recorded in October 2022, primarily pushed by the elevated meals and gas costs.

In the course of the month, Meals and Non-Alcoholic Drinks rose by 15.4% yr on yr and 0.6% from October. In keeping with Cytonn, the month-on-month improve was primarily pushed by a rise within the worth of commodities equivalent to cabbages, potatoes, Kales and beans. The rise was, nevertheless, mitigated by a drop in costs of commodities equivalent to cooking oil, tomatoes and fortified maize flour.

The housing, Water, Electrical energy, Fuel and one other Gasoline index additionally impacted inflation. The index elevated by 0.4% month on month attributable to a drop in costs of fifty Kilowatts electrical energy items, 200 Kilowatts electrical energy items, fuel and Kerosene.

“Regardless of the slight decline within the inflation fee, we count on the inflationary pressures to stay elevated within the quick time period, primarily on the again of excessive gas costs, which regardless of a decline of 0.7% in Kerosene and 0.6% for each diesel and Tremendous petrol costs for the interval between fifteenth November and 14th December 2022, the costs stay elevated.”

They added that with gas being a big enter in most companies, they count on the excessive gas costs to proceed contributing to the elevated manufacturing price, consequently elevating commodities’ costs.

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