This archive report was first published on 4 August 2020.
Published on August 4, 2020, the Kenya shilling depreciated 1.1 percent against the US dollar in July, closing at Ksh107.7 compared to Ksh106.52 on June 30.
Despite the depreciation, the shilling recorded marginal appreciation in the last week of July, closing at Ksh107.7 compared to record lows of Ksh108.13 the previous week.
On a year-to-date basis, the shilling remains battered, depreciating by 6.3 percent against the US dollar. The shilling came under intense pressure in July as dollar demand soared due to increased demand from banks and merchandise importers.
Oversubscription in Government Securities ¶
There was a huge investor appetite for government securities in July, with the Central Bank of Kenya (CBK) mopping up a cumulative KSh275 billion from the domestic market. This was due to increased liquidity in the money markets and banks preferring government securities to lending to the private sector.
Cytonn reports indicate that Treasury Bill auctions in July recorded an overall subscription rate of 243.1 percent, compared to 233.4 percent recorded in June. The Treasury Bill acceptance rate came in at 66.9 percent in July, with CBK accepting KSh195.0 billion of the Ksh291.7 billion worth of bids received.
The yield on the 91-day, 182-day, and 364-day paper declined to 6.2 percent, 6.6 percent, and 7.5 percent, respectively, from 7.1 percent, 7.8 percent, and 8.8 percent recorded in June.
The reopened 5-year, 8-year, and 14-year bonds were oversubscribed, with the subscription rate coming in at 303.0 percent, and the government collecting Ksh80 billion out of the Ksh181.8 billion worth of bids received.
Forex Reserves ¶
Forex reserves declined by $381 million in July, from $9.717 billion recorded on July 2 to $9.336 billion on July 30. However, the reserves were slightly higher than the amount recorded on June 25th ($9.229 billion). CBK maintains that the reserves remain adequate to cover 5.66 months of imports.
Inflation ¶
In July, inflation remained anchored around the target range, declining to 4.4 percent compared to 4.6 percent registered in June. CBK attributed the low inflation rate to a general decline in food prices, with food inflation declining to 6.6 percent in July from 8.1 percent in June.
