The Kenyan shilling fell to its lowest level in history on Monday, owing to the United States’ continued aggressive monetary policy. The shilling, which has been depreciating since January, began the day at 123.15, up from 123.05 on Friday.
Pundits predict that the shilling and other weaker currencies will face even more challenging times in 2023 if the US maintains its strict monetary policy.
The Federal Reserve raised the kenyan shilling benchmark interest rate to the highest level in 15 years on Wednesday, indicating that the fight against inflation is far from over, despite recent encouraging signs.
In line with expectations, the Federal Open Market Committee voted to raise the overnight lending rate by half a percentage point, bringing it to a target range of 4.25 per cent to 4.5 per cent.
The increase ended a string of four consecutive quarter-point increases, the most aggressive policy moves since the early 1980s.
Top officials at the United States central bank have confirmed plans to raise interest rates next year to flatten the highest inflation in 40 years.
According to financial analyst David Maweu, the kenyan shilling rate hike is likely to strengthen the dollar, which has gained 12% since January and is now trading almost at par with the Euro.
“The high demand for dollars as investors seek to shield themselves from currency volatility is likely to lift it further, making it more challenging for traders in weak currency jurisdictions like Kenya, “Maweu says.
He adds that the impact of last week’s Fed hike will be felt at the Nairobi Securities Exchange (NSE) as investors flock to less risky markets. He believes that, while the Central Bank of Kenya has raised the base lending rate to combat inflation, any gains made will be reversed by events in the United States.
“Last month, inflation dropped slightly by 10 basis points. I don’t see the same case for December. The inflation will at the best stagnate at 9.5 per cent as importers pass extra bills to consumers,” he says.
Several analysts predict that the kenyan shilling will end the year at around 124-125 per dollar.
Currency trader Samson Ojiambo is concerned that dollar scarcity will worsen as Christmas approaches.
“We are buying a dollar at a near 130. This is not sustainable for any business. The rate in US is likely to worsen the situation as Kenya’s forex reserves continue to drop, “Ojiambo said.
CBK governor Patrick Njoroge, on the other hand, maintains a brave face in the face of falling FX volume, insisting that the available amount is sufficient.
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