The Kenyan shilling is expected to experience further pressure, leading to speculation about whether the central bank will take action.
Since the beginning of the year, the shilling has already weakened by 14.6% against the US dollar.
The Kenya shilling depreciated by 0.3% against the US dollar to close the week ( 14, 2023) at Kshs 141.4 from Kshs 140.9 recorded the previous week.
According to Cytonn Investments, the depreciation was partly due to the persistently high dollar demand from importers, especially in the oil and energy sectors.
On the other hand, EFG Hermes Research projects that the Kenyan currency will continue weakening against the dollar, hitting Ksh150 by December 2023.
“We have not seen that dollarisation reverse because there is still some uncertainty as to whether the shilling has stabilised,” Ronak Rasiklal Gadhia, the director of frontier banks at EFG Hermes Research stated in the report.
However, going by the NCBA Monthly Report for June, the Kenyan shilling depreciated by 1.5% against the US dollar, compared to a 4.3% depreciation in March 2023.
This was due to improved market sentiment following external financing inflows in June 2023 and a decrease in import demand.
For instance, the value of imports in May 2023 fell by 2.3% year-over-year, compared to a growth of 20.4% in May 2022.
“Demand by oil importers seems to have cooled down as well,” they note.
“In July, we still seem to have pent up demand for the hard currency that is yet to be met while the tea auction may continue to see large quantities remain unsold due to the tea auction price floor.”