Investor Sell-off at NSE hits Shilling to its weakest

The Nairobi Securities Exchange (NSE) suffered a significant blow last week, with the market capitalisation dropping by 1.5 percent.

The decline in market value was driven by a broad-based sell-off, affecting all the NSE indexes.

Investors seemed to be fleeing the market, driven by concerns over the weakening currency and broader economic instability.

Central Bank of Kenya (CBK) data shows the shilling has shed 17 percent in value since the start of the year, highlighting the ongoing pressure on the local currency – currently trading at 149.5 units against a US Dollar.

“The Kenya shilling remained relatively stable against major regional and international currencies during the week ending October 12, it exchanged at Sh149.1 per US dollar,” CBK said in a statement.

Before the outbreak of the coronavirus pandemic in March 2020, the Kenyan shilling was trading at 100 against the US dollar. Since then, the greenback has strengthened by 49.5 percent.

A weaker shilling signifies higher import costs and increased inflation, which negatively impact consumers and businesses in Kenya.

This can be seen in the runaway oil prices, which have seen petrol prices rise by 2.8 percent to Ksh.217 in the October – November review from the previous Ksh.211.

The weaker shilling has also seen Kenya’s foreign exchange reserves take a hit, falling to a record low of 3.6 months of import cover, compared to 3.8 months on September 23, 2023.

This decrease in foreign exchange reserves is alarming, as it signifies Kenya’s reduced capacity to finance its imports and repay foreign debt obligations.

It also weakens the central bank’s ability to stabilise the shilling by intervening in the foreign exchange market.