Shilling Surges to 150 vs. Dollar – Report
According to a report by EFG Hermes Research on Friday, July 17, it was forecasted that the Kenyan Shilling would experience ongoing depreciation against the dollar, potentially reaching Ksh150 by December 2023.
Amid challenging times for a nation grappling with the aftermath of global economic disruptions, EFG Hermes clarified that the depreciation of the currency primarily resulted from Kenyan citizens stockpiling the US dollar.
According to the report, a lack of adequate dollar supply in the market resulted in a 15% depreciation of the shilling in 2023, reaching Ksh141.44 in Nairobi.
According to Ronak Rasiklal Gadhia, the director of frontier banks at EFG Hermes Research, the Central Bank of Kenya attempted to bolster the shilling by increasing rates, but the results were not entirely as anticipated.
“We have not seen that dollarisation reverse because there is still some uncertainty as to whether the shilling has stabilized,” Gadhia stated noting that some depositors were still not letting go of their forex holdings.
In a prior interview, Professor Fred Ogolla revealed that urgent government action was necessary to avert the shilling’s decline.
“There is a common misconception that the US dollar is getting stronger. What is happening is that the shilling is getting weaker,” he told GossipA2Z.Com
According to Prof Ogolla, as Kenyans continue to hoard the dollar, it is inevitable that the cost of living will surge significantly, given that it serves as the primary currency for foreign exchange.
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The economist stated that the initial impact of the situation would be felt on fuel, leading to higher prices for essential goods.
“Despite earlier communication by the government that fuel will be bought using Kenya shilling, the three contracted oil exporters must be paid using dollar and then they can sell in other currencies,” Ogolla explained the dollar effect.
During a previous conversation with GossipA2Z, Economist Vincent Kimosop highlighted that the Kenyan currency faced significant strain owing to trade imbalances.
He pointed out that while neighboring nations such as Tanzania and Uganda enjoy food security, Kenya is compelled to import a significant portion of its agricultural produce.
Kimosop elaborated that the significant increase in dollar demand resulted in the shilling’s depreciation and subsequent surge in living expenses.
According to EFG Hermes Research, Kenya must prioritize payment of a Ksh283 billion Eurobond set to mature in June 2024, despite the prevailing dollar shortage.
“They must pay it up because that would send a strong signal that Kenya’s dollar situation is not as bad as it was perceived to be earlier this year,” Gadhia noted adding that a default would raise borrowing costs, resulting in losses for local-currency investment portfolios.
“Significant inflows of foreign currency from a syndicated loan, funding from the World Bank and the International Monetary Fund, as well as a potential new Eurobond issuance will raise enough cash for Kenya to make the payment,” Gadhia noted how the economic crisis will be averted.
Shilling Surges to 150 vs. Dollar – Report
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