- The continued drop in the shilling continues to hurt importers who are likely to pass the high bill to consumers.
- The market value of all stocks listed on the NSE has declined by 10.72 per cent to Sh1.48 trillion from Sh1.66 trillion at the beginning of the year.
Image: FILE
The shilling opened the year at 123 units against the dollar. It has since lost another 30 units in the past 12 months to hit an all-time low of 154.40 units.
The local currency, whose volatility is solely managed using forex reserves at CBK in the absence of the International Monetary Fund (IMF) cautionary facility that expired in 2018, has shed a massive 10 per cent against the Starling Pound and almost six per cent against the Euro.
The Kenya shilling has also lost at least 20 per cent of its value against regional currencies in under a year, weakening its dominant position in the region in a trend that is serving pain to traders importing goods from Uganda and Tanzania.
The Kenyan currency is now priced at about 19.7 per cent lower than Uganda shilling when compared with mid-July last year while its value against the Tanzania shilling and Rwandese franc has also dropped by 12.1 per cent and 4.4 per cent respectively in the same period.
Central Bank of Kenya (CBK) data showed that one Kenyan shilling was averaging USh25.80, Tsh17.30 and Rwf8.30 at the start of trading last Friday.
When compared with March 2020 when the Covid-19 disruption set in, the Ugandan currency has gained about 29.5 percent against the Kenya shilling.
Tanzanian shilling and Rwandese franc have gained 24.1 percent and 10.7 percent against the Kenyan currency in this period.
The continued drop in the shilling continues to hurt importers who are likely to pass the high bill to consumers, pushing up the cost of living in the country as families prepare for Christmas festivities.
Although CBK has pulled several measures, including releasing a sizable chunk of dollars in the market to iron out volatility, the drop is still on, with experts predicting it to close the year at 155 units against the greenback.
Two weeks ago, the current CBK regime accused former governor Patrick Njoroge of burning out $2.8 billion (Sh429 billion, at the current exchange rate) worth of foreign exchange reserves to artificially prop up the shilling between 2020 and early 2023, undermining the country’s ability to cushion itself against the current bout of global shocks.
The current CBK boss Kamau Thugge poured cold water on his predecessor’s management of the country’s foreign exchange policy in his eight-year stint that ended on June 17.
Thugge said that his predecessor should have raised the benchmark rate a lot sooner and more decisively to stem the runaway depreciation of the shilling against the US dollar. He added the monetary policy is now behind the curve to rein in external pressures related to the weakening currency.
The free fall of the Kenyan unit is inflating the country’s debt by about Sh65 billion every month, which has seen it account for more than two-thirds of the Sh1.2 trillion increase in the public debt stock.
The weak shilling has necessitated the massive exit of foreign investors in the country who are seeking to invest their money in high-yield markets.
Latest data by the Capital Markets Authority (CMA) shows that some 6,256 foreign investors fled the Nairobi Securities Exchange (NSE) across nine months to the end of September, accounting for 42 per cent of exits.
The regular acknowledged that NSE is going through a bear run which started strongly in 2015, with multiple factors blamed on the downward trend of share prices. Analysts say the depreciation of the shilling and lack of dollars are now the biggest hindrance to reversing the bear run.
The market value of all stocks listed on the NSE has declined by 10.72 per cent to Sh1.48 trillion from Sh1.66 trillion at the beginning of the year.
The NSE 20 Share Index and NSE All Share Index (NASI) has fallen by 4.2 per cent and 11.01 per cent to 1,508.75 and 95.22 per cent respectively during the period under review.
Even so, the government is hopeful that the volatilities will be ironed out in the second half of the year as inflation eases.
The National Treasury expects the country’s forex earners, including diaspora remittances, agricultural exports and tourism will continue with the recovery that started post-Covid-19.
According to the Central Bank of Kenya (CBK) weekly bulletin for the period ending November 17, the inflows for the 12 months to October 2023 totalled $4,165 million (Sh631.2 billion) compared to $3,996 million (Sh605.6 billion) in the same period in 2022.
Furthermore, in the first half of 2023, Kenya's tourism sector experienced an impressive 31 per cent increase in earnings compared to the same period in the previous year.
The industry's revenue growth was propelled by a 32 per cent increase in tourist visits, with the number rising from 642,861 to 847,810.
In the export market, Kenya projects a 15 per cent rise to Sh 1.01 trillion up from Sh964 billion recorded in 2022.
Market analysts have already pointed out the gradual appreciation of the local currency, with FX Pesa for instance saying the shilling has gained marginally in the past seven days.
"This has caused excitement in the capital market, with the Nairobi Securities Exchange (NSE) reporting growth in the past week,'' FX Pesa said in its latest currency roundup.