TOUGH TIMES AHEAD AS KENYAN SHILLING CRASHES

The Kenyan shilling is widely expected to depreciate further into the end of 2022 on additional interest rate hikes by the US Federal Reserve.

Analysts at Sterling Capital Limited for instance forecast the local currency will change hands with the US dollar at between Ksh.125 and Ksh.127 at the end of the year from Ksh.120.43 at present.

“Further appreciation of the US dollar is expected with disappointing trade data and soaring inflation suggesting a 50 to 75 basis points (0.5-0.75%) interest hike in September 2022 and possibly another hike before the end of 2022,” the analysts stated.

The US Federal Reserve is expected to meet on Wednesday for the rate decision on the backdrop of higher than expected inflation data last week which has informed the need for further monetary policy tightening in the advanced economy.

The Kenyan Shilling is however expected to retain gains against the Euro and the Sterling Pound against expected rate hikes in the Eurozone as the two currencies slip continues off the backdrop of the Russia-Ukraine conflict.

The US dollar has strengthened against most of the major world currencies including the Kenyan Shilling off the back of the normalization of monetary policy/rate hikes which followed a steep rise in global commodity prices.

A stronger dollar has seen investor favour holding dollar denominated assets at the expense of other world currencies leading to significant portfolio outflows from emerging and frontier markets.

So far this year, the Kenya Shilling has depreciated by 6.7 per cent against the green buck from Ksh.113.40 at the end of 2021.

The Central Bank of Kenya (CBK) nevertheless continues to describe as stable as the unit’s performance mimics that of other major international and regional currencies.

A weaker currency has however meant greater imported inflation for Kenya as imports become more costly while external borrowing costs have risen off a stronger dollar.

This has left Kenya’s official foreign currency reserves under pressure with the cover standing slightly above the lower limit set at an equivalent four months of import cover.

The Kenya Shilling was quoted at Ksh.120.43 at the start of trading on Monday.