Shilling dips 2.5 per cent on record low interests
By John Otini, March 2, 2022The Kenya shilling depreciated by 2.5 per cent in the month of February this year making it the third-worst performing in Africa, Bloomberg data shows.
“February performance reversed January’s 2.1 percent appreciation, hence resulting in a year to date performance of -0.45 per cent,” said Churchill Ogutu, head of research at IC group.
This means that Kenyans paid more for goods and services and imports such as food, oil and factory inputs came at higher prices than before. The Kenya shilling is currently trading at Sh114 for one US dollar after losing out for the whole of last year.
The depreciation of the currency is largely due to the record low interests which were set to help fight the Covid-19 pandemic but rising energy and commodity prices and increasing the pain at the counter. This also means that oil prices will come into the country at a higher price due to a weaker shilling and global shortage caused by the Ukraine crisis.
The worst performing currencies are Sierra Leone’s Leone and Ghana Cedi. The best-performing currencies at the same period were Angolan Kwanza and Zambian Kwacha.
Financial markets
The Kenyan shilling could depreciate further as the US prepares to hike interest rates unless the CBK also begins lifting rates.
The International Monetary Fund (IMF) said that faster than expected Federal Reserve moves could rattle financial markets and trigger capital outflows and currency depreciation.
IMF warns that emerging economies should prepare for potential bouts of economic turbulence. Rising inflation in the US and around the world has forced regulators to embark on an interest rate cut.
According to the central bank, the usable foreign exchange reserves remained adequate at 4.97 months of import cover (Sh800bn)as at February 24. “This meets the CBK’s statutory requirement to endeavour to maintain at least 4 months of import cover, and the EAC region’s convergence criteria of 4.5 months of import cover,” the bank said.
According to CBK, the shilling exchanged at KSh 113.80 per US dollar on February 24, compared to Sh113.64 per dollar on February 17.