Kenyan Shilling Hits Record Low Against US Dollar, Impacting Markets
Kenyan Shilling Depreciates, Driving Up Import Costs and Inflation
On Tuesday, the Kenyan shilling experienced a significant decrease in value against the US dollar, reaching a historic low. The Central Bank of Kenya (CBK) reported a rate of 149.27, representing an increase from the previous close of 149.20. This depreciation has had a direct impact on import costs and inflation, as stated by the CBK. As a result, traders and businesses are facing higher prices, with commercial banks raising dollar selling rates to over KES150 due to the shortage of foreign currency.
FX Pesa Analysts Predict Further Depreciation
Experts at FX Pesa have noted a consistent average monthly depreciation rate of 2.3% since the start of 2023. This trend is expected to intensify due to rising oil prices and persistently high interest rates in the US. The US Federal Open Market Committee’s commitment to maintaining interest rates above 5% until 2024, combined with a 3.7% inflation rate and a projected return of 5.487% on US treasuries, presents an attractive opportunity for Kenyan investors, with a potential return of 25.5%. Consequently, there has been a shift from Kenyan bonds to the US market.
Shilling Depreciation Weakens Kenya’s Financial Position
The depreciation of the Kenyan shilling, coupled with record low foreign exchange reserves, has undermined Kenya’s ability to finance imports and service foreign debt. This situation has led to an increased demand for the US dollar, the primary currency in global trade, resulting in a higher overall import bill. The Nairobi Securities Exchange (NSE) has experienced a decline in market capitalization as investor confidence erodes due to deteriorating economic conditions and the upcoming repayment of Kenya’s debut Eurobond by June 2024.
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