Experts warn of Shilling declining against US Dollar

Experts warn of Shilling declining against US Dollar.

As of Monday, January 15, data from the Central Bank of Kenya (CBK) indicated that the shilling was traded at a rate of KSh 162.23 per US dollar.

 “The confidence in the Kenyan shilling is fast eroding, and this is discouraging foreign direct investments. This might lead to more dollar scarcity, therefore exacerbating the shilling’s fall,” said Kamau.

Kamau warned that the trend could  even worsen as manufacturers could keep stealing dollars.

“Manufacturers and investors expected the 200 basis point rate hike in December 2023 to provide some caution to the Kenya shilling’s slide. Now that the shilling is continuing to slide, they might accelerate hoarding dollars, therefore leading to further slide,” he added.

In 2023, the Central Bank of Kenya (CBK) reported that both individuals and businesses had deposited KSh 987.7 billion in dollar accounts. This marked a notable increase of KSh 66 billion from the dollar stockpile recorded in January 2023, reflecting the impact of a shortage of the US currency in the market.

Looking ahead to 2024, the projected exchange rate for the Kenyan shilling against the US dollar showed a decline, with the shilling experiencing a 27.36% depreciation compared to the exchange rate of KSh 123.55 reported in January 2023.

In a prior interview, Kamau anticipated a sustained depreciation of the shilling, attributing it to factors such as the US Federal Reserve’s interest rates and Kenya’s trade deficit..

“Considering that this is a US election year, if the US reverts to lower rates and quantitative easing, the shilling could stabilize. However, this seems unlikely since our trade deficit is worsening and foreign direct investments have slumped,” explained Kamau.

Kenyans projected a further ‘free fall’ in the exchange rate for the shilling, saying it will hit a KSh 200 mark against the US dollar.