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Kenya’s Shilling Woes to Persist as it Weakens for a Second Year

Kenya’s shilling has depreciated 3.5% to the dollar this year after a seven-month losing streak, adding to a 7.8% loss last year.

Kenya’s Shilling Woes to Persist as it Weakens for a Second Year
Kenyan shilling banknotes and coins sit arranged. (Photographer: Luis Tato/Bloomberg)

Kenya’s shilling has depreciated 3.5% to the dollar this year after a seven-month losing streak, adding to a 7.8% loss last year.

The currency of East Africa’s largest economy reached its weakest closing level of 113.09 per dollar on Dec. 23 and was trading little changed by 12:15 p.m. in the capital, Nairobi. The biggest monthly decline was in August when it weakened 1.3%, while July-September was the worst quarter after depreciating 2.4%, according to data compiled by Bloomberg.

“We expect the local currency to remain under pressure due to the continued gains by the U.S. dollar against other global currencies, elevated global oil prices supported by reduced supply from OPEC members and reduced dollar inflow from key export earning sectors such as agriculture and tourism,” according to Nairobi-based AIB-AXYS Africa Capital. 

Kenya’s Shilling Woes to Persist as it Weakens for a Second Year

“During the pandemic, the exchange rate acted as a shock absorber, reversing the previous trend of real effective exchange rate appreciation,” the International Monetary Fund said in a report released Thursday. “This has helped absorb some of the impact of the Covid-19 shock, which reduced sources of foreign exchange for Kenya.”

While inflation expectations are well-anchored and there is adequate foreign-exchange reserve coverage, an analysis of Kenya’s debt sustainability suggests that the nation is susceptible to export and exchange rate depreciation shocks, according to the Washington-based lender. 

©2021 Bloomberg L.P.