Kenyan shilling on 5 day losing streak against the US dollar

Last week witnessed a remarkable resurgence of the US dollar against the Kenyan shilling, as indicated by data from the Central Bank of Kenya (CBK).

The shilling experienced a significant depreciation, with its exchange rate skyrocketing to a staggering Sh131.44 against the dollar.

Forex Bureau shops reported exchange rates ranging between Sh133 to Sh135 for the Kenyan currency against the dollar, highlighting the extent of its decline.

Commercial banks consistently quoted high exchange rates, with the dollar selling at Sh137 and hitting a low of Sh131 for the fifth consecutive time.

This five-day streak of losses against the dollar marked the first occurrence since mid-March.

Just two weeks prior, the shilling had been on a positive trajectory against the dollar, trading at Sh127, indicating a robust performance in the foreign exchange market.

The CBK's intervention in the foreign exchange market was instrumental in supporting the shilling's appreciation against the dollar, along with favorable export conditions and steady remittance inflows.

However, this recent resurgence of the dollar is poised to present challenges for Kenyan importers and travelers, as it raises the cost of imported goods and foreign travel expenses.

The shilling had hit its weakest point in January 2024, exchanging at Sh160 against the dollar, before gradually appreciating to trade at 133.99 per dollar.

On March 12, the CBK quoted the shilling at Sh139 officially, marking the first time since June 2023.

The depreciation of the dollar had become a cause for concern, prompting CBK Governor Kamau Thugge to indicate potential intervention if the fall persisted beyond expected limits.

“We’ll allow the inflows and demand and supply of foreign exchange to determine that level, but we have to have the right balance,” Thugge stated.

He emphasized the importance of ensuring that the exchange rate reflects market economic fundamentals, encourages exports, and is not punitive to imports.

Given Kenya's heavy reliance on imported manufacturing raw materials, a strong shilling against the dollar would reduce manufacturing costs, subsequently lowering the cost of goods.

Thugge also noted that external debts currently stood at $38 billion, underscoring the need for prudent management of exchange rate dynamics.

The continued appreciation of the shilling against the dollar has resulted in significant savings for the government, estimated at Sh40 billion for every shilling gained.

This positive impact has also extended to the livelihoods of Kenyans, reflected in notably reduced petrol prices and expected decreases in electricity bills.