During the first week of the year, the Kenyan Shilling saw a 0.6% fall in value against the US Dollar, ending at Ksh.157.9 on January 5, 2024, up from Ksh.156.9 at the start of the year. This follows depreciations of 26.8%, 9.0%, and 3.6% in 2023, 2022, and 2021 respectively.
This is the weakest the Kenyan Shilling has ever been against the US Dollar. The continuous depreciation is mainly driven by a globally stable dollar after its gain in 2022, an ongoing current account deficit, a negative trade balance, and reduced capital market inflows.
This means that Kenyans will need to spend 0.6% more shillings to buy the same amount of dollars.
Importers have had to pay an extra 0.6% and have repriced their items, raising the cost of consumer goods and contributing to higher inflation in Kenya.
Exporters, on the other hand, are receiving more shillings for the same quantity of exports, and their products appear to the rest of the world to be cheaper.
Interest rates have risen significantly over the past year, with the 91-day treasury bill rates reaching a peak of 16.0%.
In the Euro bond market, rates have been high, with Euro bonds trading at rates above 15.0% in December 2023.
The rise in interest rates is due to the government’s increased cash demand as they continue to operate at a fiscal deficit and seek cash to rollover redemptions.
The situation has been exacerbated by downgrades from various rating agencies.
In May 2023, Moody’s downgraded Kenya’s senior unsecured debt rating, along with its long-term foreign-currency and local-currency issuer ratings, moving to B3 from B2.
Similarly, in December 2022, Fitch Ratings downgraded Kenya’s Long-Term Foreign-Currency Issuer Default Rating (IDR) from ‘B+’ to ‘B’, maintaining a Stable Outlook.
