Nairobi, Kenya – Kenya shilling continues to depreciate against the US dollar in January 2024.
Data from the Central Bank of Kenya (CBK) showed the shilling exchanged at KSh 159.85 as of the close of business on Thursday, January 11.
Why Kenya shilling continue to fall
This represented a significant decline from the exchange rate of KSh 157.39 reported in the first week of January 2024.
CBK noted that foreign exchange reserves remained adequate at USD 6,829 million, representing 3.7 months of import cover.
The US continued to tighten its fed interest rate against the backdrop of increasing inflation, bringing volatility in the shilling exchange.
Market analyst at FXPesa Kenya Rufas Kamau told News 9 Kenya that the shilling risks falling deeper, should the fed reserve maintain higher rates.
“If the US reverts to lower rates and quantitative easing, the Shilling could stabilise. but that can mean otherwise considering this is the US election year,” said Kamau.
Is Kenya’s raise of CBK rates helping the shilling?
Kamau noted that despite CBK increasing the lending rates by 200 bps in December 2023, the shilling has continued to lose against the dollar and other major currencies.
Kenya National Bureau of Statistics (KNBS) report in quarter 3 of 2023 showed the shilling lost 30.3% against Euro, 29.7% against the British Sterling Pound, 20.6% against the USD, and 15.3% against the Japanese Yen.
The regulator increased the base lending rate to 12.5%, up from 10.5%.
CBK Monetary Policy Committee (MPC) chaired by Governor Kamau Thugge said the move is aimed at easing pressure on the exchange rate.
The regulator also cited mitigation of the second round effects from the global prices.
“This will ensure the inflationary expectations remain anchored while setting inflation on a downward path towards 5%mid-point of the target range,” said Thugge in a press release on Tuesday, December 5.
This followed the depreciation of the shilling to KSh 153.3 against the US dollar, as of November 30, 2023.
“The exchange rate depreciation continues to exert pressure on domestic prices, thereby increasing the cost of living and reducing purchasing power. The declining exchange rate contributed 3% points to the November inflation,” the MPC said.
Kenya’s inflation in November 2023 has slightly dropped by 0.1% to 6.8% down from 6.9% reported in October 2023.
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