Kenyan currency records one of its largest depreciations in history
CHINEDU OKAFOR
Friday August 11, 2023
Imported products are now becoming more expensive for consumers due to the unprecedented decline in the value of the Kenyan shilling. In less than 50 months, the shilling has lost over half of its value against the US dollar, causing significant economic strain.
This devaluation of the shilling has put immense pressure on commercial banks in Nairobi, leading some banks to sell US dollars at a rate higher than the Sh150 threshold. This, in turn, is expected to result in price increases for imported goods such as fertilizers, electronics, and vehicles.
According to a recent survey conducted by the Business Daily, both I&M Bank and Sidian Bank are already selling US dollars above the Sh150 threshold. Similar findings were observed across three forex bureaus and 11 other banks in Nairobi, with the average selling price for the dollar rapidly approaching the Sh150 mark.
The actual exchange rate, as reported by forex dealers, differs significantly from the average exchange rate of Sh142.98 provided by the Central Bank of Kenya (CBK). Despite the government’s efforts to halt the devaluation, the shilling continued to weaken. Out of the 12 forex dealers evaluated, Sidian Bank exhibited the largest spread, with a net margin of Sh15.1.
Various banks presented different exchange rates, with I&M Bank offering Sh152.9, Standard Chartered Bank offering Sh149, and KCB offering Sh148.9 for one US dollar. Cooperative Bank and Stanbic set their rates at Sh148.5 and Sh147 respectively. Absa and DTB sold the dollar at Sh147.18 and Sh146.7 respectively. Furthermore, all three sampled forex bureaus sold dollars at an average rate of Sh145.
While recent contributions from development partners, including the International Monetary Fund (IMF), have increased Kenya’s foreign exchange reserves, importers have still faced challenges in procuring foreign currency at affordable rates. Even though customers are paying higher prices for goods, importers have been compelled to reduce their purchases.
In 2022, currency trading proved to be a significant source of income for banks due to the widening gap between the buying and selling prices of foreign currencies, particularly the dollar. As a result of the shilling’s depreciation, all banks experienced a substantial increase of at least 30% in their foreign exchange income, with I&M Bank leading the way followed by NCBA.
Previously, President William Ruto expressed optimism that the shilling would strengthen through the government-to-government agreement for oil imports. This arrangement aimed to ensure a stable and long-term supply of fuel, thereby alleviating the demand for dollars. However, the shilling has continued to depreciate, losing around 15.8% of its value since the beginning of the year. This depreciation has been exacerbated by the increase in interest rates by central banks in industrialized nations, which has further worsened the dollar shortage in Kenya.
