The Kenya Shilling appreciation against the US Dollar appears to have finally hit the floor and could be in reverse gear. This has been attributed to a stronger US dollar due to tensions in the Middle East, and reluctance by the US Federal Reserve Bank to cut interest rates.
- •On the international front, the US dollar strengthened further 0.1% week on week against a basket of currencies taking the year-to-date performance to 4.72%.
- •When forex markets opened today, it was quoted by the Central Bank of Kenya(CBK) at KSh 132.3003 against the US$, KSh 131.7896 this Monday, and 131.44 when the markets closed on Friday last week.
- •The Kenya Shilling depreciation against the US$ first happened on April 11, 2024 when it hit KSh 130.3898 according to CBK Data. The Kenya Shilling dropped to its lowest point of KSh 160.1846 against the US$ on 16 January 2024.
Has Kenya’s Economic Fundamentals Improved to Warrant a Strengthening Kenya Shilling?
“The short answer is no. Kenya recently borrowed almost US$ 2.5 billion abroad to refinance a US$ 2 billion debt. The result was a net growth of almost US$ 500 million in external debt. This will further increase the proportion of public revenue committed to debt servicing (called the debt burden). As of the first quarter 2023, debt servicing was gobbling up more than 60% of Kenya’s tax revenue leaving little cash for development spending,” said Odongo Kodongo, Associate Professor, Finance, University of the Witwatersrand, South Africa.
He added that while CBK has maintained a tight grip on monetary policy, to curb inflation, this has led to expensive cost of money – the benchmark rate is now at 13% since February, effectively crowding out lending by banks to the private sector and lowering economic production. This situation leads to more imports and piles pressure on the Kenya Shilling.
According to Trading Economics global macro models projections and data, the US Dollar against the Shilling traded at 134.060 on Monday April 22, increasing 0.560 or 0.42 percent since the previous trading session.
“Looking back, over the last four weeks, the US Dollar has gained 1.95% against the Shilling. Over the last 12 months, the Shilling price fell by 0.95 percent. Looking ahead, Trade Economics forecasts the US Dollar against Shilling to be priced at 132.773 by the end of this quarter and at 137.445 in one year,” said Trade Economics forecast.
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