Experts are now warning that the Kenyan shilling is likely to depreciate even further after it weakened against the US Dollar Tuesday.
According to the Central Bank of Kenya (CBK), the shilling is now trading at 113.62 against the dollar, 0.38 units shy to hit 114 levels. It depreciated by 3.6 percent in December last year to trade at 113.1 units against the dollar.
The weaker shilling is being attributed to the rise in global oil prices, based on a report from EFG Hermes Kenya, a financial service firm.
Further depreciation of the shilling would make the import of goods and services more expensive thus amounting to a jump in the inflation rate.
Inflation eased to 5.4 percent in January, easing slightly from December’s 5.7 percent. January’s figure marked the lowest inflation rate since August 2020.
Accordingly, annual average inflation fell to 6.1 percent in January compared to December’s 6.2 percent.
Kenya being a major importer of petroleum products means that higher oil prices will increase the demand for a dollar. The country’s import bill has inflated following the rise in Brent crude prices to a minimum of Ksh.10,578.94 per barrel from Ksh.7,385.94 as of August last year.
The latest move by America’s Central Bank to reduce the amount of money it injects into the economy and the rising of interest rates is expected to pave way for the increase in the value of the dollar relative to other currencies Kenya is part of.
However, The Federal reserve may save the situation and slow down inflation by raising the benchmark interest rates from zero to 0.25 percent in March as the increase is expected to lift the rate in securities including mortgages, making dollar-denominated assets more attractive.
More risks that may be brought about by depreciation of the currency include potential drought after a poor rainy season last year.
According to EFG Hermes pressure on the local currency will continue despite the growing economy, pointing out the August 8 general election as the most important event to the county’s economy.
