KENYAN SHILLING SLIDES TO 126 AGAINIST US DOLLAR, IMPLICATIONS

 Leading market analyst at FX Pesa EGM Securities, Rufas Kamau, noted that the depreciating shilling puts extra pressure on household budgets. He told TUKO.co.ke that the rise in interest rates by the US Federal Reserve System and the widening gap. 

Foreign exchange rates were two major factors contributing to the fall. The strengthening of the Kenyan shilling versus the US dollar suggests that difficult times are ahead for Kenyans and the government, but on the plus side, Kamau pointed out. 

The increase in exchange rates boosts exports by making Kenyan goods more affordable to the rest of the world. The shilling was trading at 126.90 against the dollar as of Saturday, February 25, with commercial banks offering to sell dollars for between KSh 135 and KSh 137.

Rufas Kamau explains why the shilling is weakening. 

Leading market analyst at FX Pesa EGM Securities, Rufas Kamau, outlined how the declining shilling puts further pressure on household budgets. According to him, the rise in interest rates by the US Federal Reserve System and the widening gap in foreign exchange rates were the two main causes of the drop. 

"The official rates of the central bank are significantly different from the black market and bank rates." This occurs when businesses hoard funds because they are in short supply. "When you need dollars, you'll have to buy them again at a higher price if you sell yours in Kenya," "He rambled on.

Implications of weakening shilling 

On the plus side, according to Kamau, the rising currency rate encourages exports by lowering the cost of Kenyan goods to the rest of the globe. Kenyans must now pay more for essential goods and services, which raises the cost of imports. 

"Kenya imports more commodities than it exports. This shows that a 25% decline in value relative to the US dollar has more unfavorable effects than favorable effects. The Central Bank of Kenya reported that in December 2022, the annual inflation rate was 9.06%. (CBK).

 This indicates that a basket of consumer goods and services retail prices increased by 9.06% in 2022 "said he. According to Kamau, a weakening shilling may encourage individuals and businesses to hunt for a more reliable method of holding value. 

This could entail acquiring and holding dollars, foreign securities, gold, foreign bonds, and cryptocurrencies.

Impact of weakening shilling on debt 

Kenya has dollar-denominated loans, just like many other economies in the developing world. Kenya's liabilities increase when the Fed increases interest rates because the country has to spend more shillings to buy an increasing dollar, which it then uses to pay back loans. 

Kenya and other developing nations are at a high risk of defaulting on their loans, which will cause money to move away from the frontier and emerging economies and toward developed ones. By forcing investors to sell bonds in the developing world in favor of safer bonds. 

In the developed world, Kamau continued, "this drain weakens the exchange rate."

Wealthy Kenyans accumulate dollars 

According to the Central Bank of Kenya (CBK), rich Kenyans hoarded dollars to protect the value of their bank savings as the value of the Kenyan shilling continued to decline. Rich Kenyans and businesses had KSh 922 billion in cash as of November 2022, up 14.8% from KSh 803.66 billion at the same time the previous year. The CBK instructed the c

Rufas Kamau explains why the shilling is weakening. 

Implications of weakening shilling 

Impact of weakening shilling on debt 

Wealthy Kenyans accumulate dollars