In a significant financial development, the Kenyan shilling plummeted to a historic low, crossing the KSh 160 mark against the United States (US) dollar on Monday, January 15. The Central Bank of Kenya’s official rate quoted the exchange at 160.2384, reflecting a continuous freefall that has seen the shilling lose over 27% of its value.
FX Pesa’s lead market analyst, Rufas Kamau, expressed concerns about the eroding confidence in the Kenyan shilling, attributing it to the discouragement of foreign direct investments.
Kamau warned of potential repercussions, including manufacturers hoarding dollars, as businesses lose trust in the Central Bank of Kenya’s (CBK) ability to stabilize the local currency.
He also said this weakening of the shilling might lead to more dollar scarcity, exacerbating the shilling’s fall, revealing that the lack of confidence in CBK’s ability to provide monetary policy that supports the shilling is eroding trust.
The situation has sparked fears among investors and businesses, who initially anticipated a 200 basis point rate hike in December 2023 to curb the shilling’s slide. With the shilling’s continued decline, there are concerns that hoarding dollars could accelerate, further intensifying the slide.
The current state of the Kenyan shilling has also become a political talking point, with CBK Governor Kamau Thugge attributing the depreciation to the shilling being overvalued by 20 to 25%.
Thugge accused the previous government, led by retired President Uhuru Kenyatta, of using forex reserves to artificially strengthen the currency. President William Ruto, on the other hand, had optimistic predictions, estimating the dollar would exchange at KSh 120 or KSh 115 following a government-to-government oil deal with Middle Eastern state-owned energy companies.
However, the shilling’s 27.36% loss against the dollar compared to the exchange rate reported during a similar period in 2023 has raised questions about the government’s economic management. As businesses and investors closely monitor the situation, there are growing uncertainties about the future trajectory of the Kenyan shilling against the US dollar.
