Kenya shilling official exchange rate against dollar hits 160, the Biggest drop in 30 Years

The Kenya Shilling was quoted at an indicative rate of 160.1846 against the US$ by the CBK when the forex markets opened this week.

• The Kenya Shilling exchange rate free fall continues on a free fall ahead of the IMF discussions of Kenya beginning this Wednesday, January 17th, 2024.
• The discussions will see Kenya have immediate access to US$ 682.3 Million in financial support under the Fund’s program.
• The IMF’s additional disbursement of KES 427 billion (about USD 2.7 billion) is anticipated to assist Kenya address the June maturity of Eurobond 2024.

This marks the first time the Kenya Shilling Exchange rate against the greenback has gone beyond the 160 mark, exerting more pain on importers, consumers as well as foreign investors at the Nairobi Securities Exchange (NSE) who now earn less while repatriating their gains.

In 2023, the local unit depreciated at -27%, a decline last seen 15 years ago in 2008 when Kenya went through its worst post-election violence.

“The [IMF] disbursement is set to prop up Kenya’s foreign exchange reserves which as of 11th January 2024 stood at USD 6.8 billion representing 3.7 months of import cover” reads a note from Nairobi based Faida Investment Bank.

Worst Hit by Weakening Shilling

On the list of the worst hit is the Nairobi Securities Exchange (NSE) which has been on a sustained bear run, throwing firms that would like to list at the bourse off balance. Foreign investors have also taken flight as a weakening Kenya Shilling cuts down on the amount of profits, and dividends that can be repatriated from Kenya’s stock market.

• The Central Bank of Kenya has maintained that the rapid depreciation of the Kenya Shilling against the US dollar is an adjustment process of the currency to its market value after artificial management for years.
• The latest firm to blame its financial woes on, among other things, the weakening shilling, is Limuru Tea, which has joined the long list of firms that have issued profit warnings for the 2023 earnings.
• The listed agro-based firm cited increased labour costs, the impact of Kenya Shilling depreciation on fertilizer imports, and a projected loss in Biological Asset valuation.

Since September 2022, the local unit exchange rate against the US dollar has been on a free fall from KSh 119 to the current levels of above KSh 160.

Analysts at AIB-AXYS expect that volatility in the local unit exchange rate against US$ will ease – albeit marginally – due to a narrowing balance of payments deficit, supported by stabilizing dollar inflows from tourist arrivals, diaspora remittances, and key export-earning sectors.

However, rising external debt-service commitments, coupled with the ballooning import bill poses downside risks for the Shilling.