Shilling retains a free fall, squeezes millions of households

Shilling hit a new all-time low against the US dollar to stand at Sh141.04 per green buck this week, says Bloomberg data.

Central Bank of Kenya (CBK) data also showed that the exchange rate stood at Sh141.06 yesterday. This depreciation of the shilling against the US dollar has significant implications for various sectors of the economy, including the cost of living, debt service, fuel prices, cost of electricity, and raw material imports for manufacturers.

One of the most immediate effects of the depreciating shilling is its impact on the cost of living. As the shilling weakens, the prices of imported goods and services rise.

This increase in prices affects consumers who rely heavily on imported products, such as electronics, vehicles, and luxury goods. The rising cost of living can put a strain on households, particularly those with limited income, as they face higher expenses for everyday necessities.

Additionally, the depreciation of the shilling has a direct impact on debt service. Kenya has a significant amount of external debt denominated in foreign currencies, especially the dollar. Public debt stood at over Sh9.6 trillion by March.

“While the decline is favourable for Kenya in terms of relatively cheaper exports, it is unfavourable when considering the forex risk implication on the debt servicing charges of the external loans,” Institute of Economics Affairs says in its latest public finance analysis. “To put the decline of the shilling into perspective, the repayment of $1 loan by the end of March 2023 is 1.25 times it was at the beginning of 2021,” the think tank adds.