Expect Further Decline In Kenya Shilling Against US Dollar, Expert

• The Central Bank of Kenya (CBK) exchange rate showed the shilling at KSh 160.23 against the US dollar as of Monday, January 15
• The rate indicated a further decline in the currency, which lost 27% of its value against the US currency in 2023
• FX Pesa lead market analyst Rufas Kamau explained that the trend could worsen as investors lose confidence in the Kenya shilling

TUKO.co.ke journalist Wycliffe Musalia brings over five years of experience in financial, business, and technology reporting, offering deep insights into Kenyan and global economic trends.

Manufacturers and investors in Kenya have continued to keep their wealth in dollar-dominated accounts as the shilling sinks deeper against the US dollar.

The Central Bank of Kenya (CBK) data showed the shilling exchanged at KSh 162.23 per US dollar as of Monday, January 15.

Why Kenya shilling is in free fall

In an exclusive interview with TUKO.co.ke, FX Pesa lead market analyst Rufas Kamau noted that investors have lost confidence in the Kenya shilling.

"The confidence in the Kenyan shilling is fast eroding, and this is discouraging foreign direct investments. This might lead to more dollar scarcity, therefore exacerbating the shilling's fall," said Kamau.

Kamau warned that the trend could worsen as manufacturers could keep hoarding dollars.

"Manufacturers and investors expected the 200 basis point rate hike in December 2023 to provide some caution to the Kenya shilling's slide. Now that the shilling is continuing to slide, they might accelerate hoarding dollars, therefore leading to further slide," he added.

In 2023, CBK reported that individuals and businesses stashed KSh 987.7 billion in dollar accounts.

This was a KSh 66 billion increase from the dollar stockpile in January 2023 as the US currency shortage hit the market.

Projected Kenya shilling rate against US dollar in 2024

The shilling lost 27.36% against the dollar, compared to the KSh 123.55 exchange rate reported in January 2023.

In a previous interview with TUKO.co.ke, Kamau projected a continued fall in the shilling based on the US Feds rate and Kenya's trade deficit.

"Considering that this is a US election year, if the US reverts to lower rates and quantitative easing, the shilling could stabilise. However, this seems unlikely since our trade deficit is worsening and foreign direct investments have slumped," explained Kamau.

Kenyans projected a further 'free fall' in the exchange rate for the shilling, saying it will hit a KSh 200 mark against the US dollar.

Facts about reduced investments as Kenya shilling falls

• Kenya National Bureau of Statistics (KNBS) report indicated that Kenya's currency lost value against prominent currencies such as the Euro, Pound Sterling, US Dollar, and Japanese Yen.
• In December 2022, more than 6,256 or 42% of investors and foreigners rattled by the weakening shilling fled Kenya, leaving a dent in the Nairobi Stock Exchange(NSE).
• In 2023, experts attributed the decline in foreign direct investment to changing tax policies and further depreciation of the local currency, weakening economic growth.