Standard Chartered has projected a weakening of the US dollar over the next six to 12 months, a development that could ease Kenya’s inflation and unlock new investment opportunities as investors seek yields outside the US. 

As a result, Kenya’s inflation could ease further in the second half of 2025, buoyed by a combination of a weakening dollar, favourable rainfall and declining energy costs amid subdued global oil demand. 

Annual inflation stood at 3.8 per cent in June 2025, down from higher levels in previous years. The easing is largely attributed to improved food supply conditions and stabilising transport and energy costs.

Analysts now say this trend is likely to hold for the rest of the year, as macroeconomic forces align in favour of emerging markets like Kenya. 

“Emerging market investors are well-positioned to capitalise on a period of weaker dollar dynamics and shifting global trade flows,” said Manpreet Gill, Chief Investment Officer for Africa, the Middle East, and Europe at Standard Chartered. 

The Kenya National Bureau of Statistics (KNBS) said the food and non-alcoholic beverages index rose by 6.6 per cent in the year to June 2025, the highest contributor to the inflation basket.

However, the forecast of good rains in key agricultural zones means the pressure on food prices may soon taper off, easing the strain on household budgets. 

Meanwhile, energy costs, a key input in transport and production, could ease further as global oil prices remain under pressure due to lacklustre demand and improved supply.  

A softer dollar would amplify these effects by reducing the cost of oil imports, which are priced in the greenback. 

Standard Chartered Bank, in its latest Global Market Outlook for the second half of 2025, reinforces the outlook for a weaker dollar.

The bank cites resilient consumption in the US, fiscal easing in Europe, and stimulus-led recovery in China as factors underpinning changing capital flows globally. 

Emerging market bonds 

Gill added that asset classes such as emerging market bonds and non-US equities are poised to benefit under these conditions.

Kenya, as part of this grouping, is likely to see renewed foreign investor interest in local bonds and equities, potentially supporting the shilling and government borrowing plans. 

Kenya’s current account deficit widened to Ksh66.6 billion in the first quarter of 2025, from Ksh42.1 billion a year earlier, due in part to lower remittance inflows.

Diaspora remittances fell by 11 per cent to Ksh161 billion, denting one of Kenya’s key sources of foreign exchange. 

However, the merchandise trade deficit narrowed slightly to Ksh306.1 billion, indicating some resilience in exports compared to a deeper decline in imports.

A softer dollar could help further reduce import costs, especially for fuel and machinery, while giving Kenyan exports a competitive edge in global markets. 

Crucially, a stable or declining dollar would relieve some pressure on the Central Bank of Kenya in managing external debt service costs, much of which is denominated in foreign currencies.

With interest rates expected to ease globally, Kenya could also benefit from lower borrowing costs for both the public and private sectors. 

The broader inflation outlook is also supported by a stronger shilling, which has been helped by tighter monetary policy and easing global financial conditions.

The expected stability in currency markets could shield consumers from sudden spikes in the cost of imported goods.