According to the Central Bank of Kenya (CBK), the depreciation of the Kenyan currency implies a higher cost in shillings to finance imports
A weak shilling also means the country will incur more in serving foreign debt which is repaid in dollars and other foreign denominations
As the Kenyan shilling continues to depreciate, wealthy Kenyans accumulated dollars to preserve the value of their bank deposits
The Kenyan shilling has hit a historic low of KSh 124 against the United States (US) dollar signalling tough times for President William Ruto’s administration.
According to the Central Bank of Kenya (CBK), the depreciation of the Kenyan currency implies a higher cost in shillings to finance imports.
A weak shilling also means the country will incur more in serving foreign debt which is repaid in dollars and other foreign denominations.
“For a small, open, developing economy like Kenya that has a huge oil import bill, a protracted weakening of the shilling may eventually cause inflationary pressures by knock-on effects through energy prices, However, there is also a positive side to a weak shilling as it means lower foreign prices for our exports; this increases the country’s competitiveness in the world market, which improves our balance of trade position,” the CBK stated.
Wealthy Kenyans accumulate dollars The CBK reported that as the Kenyan shilling continued to depreciate, wealthy Kenyans accumulated dollars to preserve the value of their bank deposits.
As of November 2022, rich Kenyans and companies had piled KSh 922 billion in dollars, an increase of 14.8% compare to KSh 803.66 billion during a similar period in 2021, Business Daily reported.
The shilling has weakened from KSh 113.23 at the start of 2022 to KSh 124 pushed by a high demand for forex from importers.
CBK orders banks to ration US currency Due to a shortage of dollars, the CBK issued a directive to the commercial banks to ration US dollars.
The regulator’s order came amid currency shortage in the market, crippling manufacturing and general goods importation.
The shortage came as a result of increased dollar demand driven by increased shipment of raw materials following economic recovery from the COVID-19 pandemic. The majority of manufacturers were restricted to a daily cap of $50,000, which is about KSh 6.2 million.
The Kenya Association of Manufacturers (KAM) chairperson Mucai Kunyiha said firms had been forced to plan for weeks before completing the dollar transaction.
