The Kenya shilling depreciation has become an important issue in the nation’s economic landscape.
Recent data from the Central Bank of Kenya (CBK) shows a constant weakening of the local currency against the US dollar. As a result, various Kenyan sectors are concerned.
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US Dollar Strength: Its Impact on Kenya Shilling
Current Exchange Rates & Trends
As of July 17, 2024, 1 US dollar equaled 127.509 Kenyan shillings. This represents a 7.98% decrease in the rapport between the currencies’ rates over the past year.
The chart above reveals a complex pattern of currency fluctuations:
- A steady increase in the exchange rate from July 2023 to December 2023
- A sharp decline in January 2024
- Partial stabilization with minor fluctuations from February 2024 onwards
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Factors Influencing the Exchange Rate
Several factors have contributed to the changes in the USD/KES exchange rates:
Moody’s Downgrade
Moody’s, a global rating agency, has downgraded Kenya’s debt rating from B3 to Caa1. This move placed the Kenyan government debt in the ‘very high-risk credit’ category. This, in turn, has stopped any foreign investors from showing interest.
Low Demand in the Bond Market
Because of the recent low demand in Kenya’s bond market, the shilling was downgraded and became weaker. This trend suggests a decrease in investor’s confidence in Kenyan financial instruments.
Business Disruptions
Several disruptions in business activities across Kenya have also reduced the overall economic activity. This, in turn, has decreased the demand for the shilling.
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Economic Implications
The US dollar’s strength compared to the Kenya shilling has significant implications:
- It increases the cost of imports during periods of shilling weakness
- It creates a potential for improved export competitiveness
- Recent fluctuations in external debt valuation in local currency terms
Impact on Business Confidence
The recent stabilization of the exchange rate may help recover some of the business confidence lost in the last few days.
That said, the overall depreciation over the past year could still create challenges for businesses that rely on imports or use the dollar in their transactions.