The Kenyan shilling’s sharp decline to 150 against the U.S. dollar on October 23 placed significant strain on the nation’s diminishing foreign exchange reserves and exacerbated the cost of imports in the face of increasing inflation.
Over the last year, the Kenyan shilling has experienced an accelerated devaluation, shedding nearly 24% of its value compared to the U.S. dollar.
In Monday’s trading, the Central Bank of Kenya (CBK) set the exchange rate for the local currency against the dollar at 149.94, reflecting a year-to-date drop of 24 percent.
As of October 19, the foreign exchange reserves hit a fresh low at 6.83 billion U.S. dollars, which was only sufficient to cover 3.67 months’ worth of imports, marking a decline from the 7.29 billion dollars recorded a year earlier.
As per the Central Bank of Kenya, on Monday, the exchange rate was set at 150 shillings per dollar, with certain commercial banks and currency exchange bureaus having reached or even exceeded this rate in the preceding weeks.
The Central Bank of Kenya (CBK) had forecasted that a revival in exports, resolution of the Russian-Ukraine conflict, a pause in global monetary policy tightening, an increase in diaspora remittances, prudent monetary measures, and a stable import expenditure are all anticipated to contribute to the restoration of stability in the local currency.
Nonetheless, according to Ken Gichinga, who serves as the chief economist at the research firm Mentoria Economics, this recent depreciation is primarily attributed to the appreciating value of the U.S. dollar, a consequence of the recent turmoil in the Middle East, leading investors toward safe assets, as well as the attractive yields on U.S. Treasury bonds.
The devaluation is resulting in elevated import costs and a rise in Kenya’s debt, which, as per Treasury data, amounted to over 10,100 billion shillings (equivalent to 64.4 billion euros) by the close of June. This figure represents approximately two-thirds of the country’s gross domestic product.