CurrenciesEast Africa

African currencies under pressure on continued higher US interest rates

African currencies under pressure on continued higher US interest rates

Weaker currencies make the fight to curb inflation harder given that majority of African countries dependend on imports

Since the pandemic at the onset of 2020, most sub-Saharan African currencies have weakened against the US dollar, fanning inflationary pressures across the continent as import prices surge.

This, together with a growth slowdown, leaves policymakers with difficult choices as they balance keeping inflation in check with a still-fragile recovery.

According to Bloomberg, the average depreciation for the region since January 2022 is about 8 percent. The extent varies by country, however. Ghana’s cedi and Sierra Leone’s leone depreciated more than 45 percent.

External factors mostly drove the depreciations across the region. Lower risk appetite in global markets and interest rate hikes in the United States pushed investors away from the region towards safer and higher-paying US treasury bonds.

Foreign exchange earnings took a hit in many countries as demand for the region’s exports dropped because of the economic slowdown in major economies. At the same time, high oil and food prices, partly due to Russia’s war in Ukraine, pushed up import costs in 2022.


For the past week, the Kenya Shilling depreciated by 0.4% against the US dollar to close the week at Ksh.143.6 from Ksh.142.9 recorded the previous week.

On a year-to-date basis, the shilling has depreciated by 16.3% against the dollar, adding to the 9.0% depreciation recorded in 2022.

The need for government debt servicing continues to put pressure on forex reserves given that 66.8% of Kenya’s external debt is US Dollar denominated as of April 2023.

The tied consequences are that the Kenya shilling exchange rate versus Uganda shilling slumped from an average Ush.30 to a record low of Ush.24 last month.


When currencies weaken against the US dollar, local prices rise, as much of what people buy, including essential items like food, are imported. More than two-thirds of imports are priced in US dollars for most countries in the region.

According to a report by CNBC Africa, Weaker currencies also push up public debt. About 40 percent of public debt is external in sub-Saharan Africa and over 60 percent of that debt is in US dollars for most countries.

Since the beginning of the pandemic, exchange rate depreciations have contributed to the region’s rise in public debt by about 10 percentage points of GDP on average by end-2022.

Growth and inflation (which reduces the real value of existing debts) helped to contain the public debt increase to about 6 percent of GDP during the same period.

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Lawrence Baraza

Lawrence Baraza is a dynamic journalist currently overseeing content at Metropol TV Digital. With a keen focus on business news and analytics, Lawrence guides the platform in delivering insightful, data-driven content that empowers its audience to make informed decisions. Lawrence’s commitment to quality and his ability to anticipate market trends make him a key figure in the digital media landscape. His work continues to shape the way business news is consumed, making a significant impact in the field.

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