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Economic outlook brightens as Kenyan Shilling makes 3-year high gain

The Kenyan Shilling, one of Africa’s worst-performing currencies in 2023, recently experienced a gain of 0.73 percent against the US dollar. The currency has not had this sort of gain in over 3 years, as the Shilling went from 161.36 on Monday to 160.19. This marks an interesting milestone given the currency's seemingly persistent depreciation.

Economic outlook brightens as Kenyan Shilling makes 3-year high gain
  • The Kenyan Shilling experiences a notable gain of 0.73% against the US dollar.
  • Central Bank of Kenya's official data reveals that the currency last witnessed comparable gains during the COVID-19 pandemic.
  • Market experts interpret the recent strengthening as a positive sign.

A report by the Kenyan business news publication BusinessDaily showed that the Kenyan Shilling deviated from its current downward trajectory, which has persisted for months, and moved in the opposite direction gaining almost 1% against the dollar.

According to official data from the Central Bank of Kenya (CBK), the currency last made comparable gains during the COVID-19 pandemic on December 23, 2020, when it increased by 1.46 percentage points against the dollar.

At the time, the local currency had gained to 109.44 versus the dollar, up from 111.04 on December 22.

“If you are getting days of strengthening, then that begins telling you that the market is improving. It is a positive sign and shows that liquidity may be returning to the interbank forex market,” Muathi Kilonzo, frontier equity sales and head of equities Kenya at EFG Hermes told the Business Daily.

Kenya's currency fell by more than 26% in the 12 months ending in December 2023, more than tripling its depreciation rate from 8.3% the year prior.

According to a Bloomberg report, Kenya last year experienced its worst currency hit in over 3 decades, alongside Nigeria which experienced its worst currency performance since 1999.

Just last week, Kenya’s currency reached a new low at Sh160.23 per dollar. This was due to the fact that the dollar demand from the energy and manufacturing sectors had put tremendous pressure on the Kenyan Shilling over the last 2 weeks, according to currency traders in the country.

The country's currency depreciated by 2.4% against the US dollar in the first two weeks of the new year, going from Sh156.40 to Sh160.23, a stark contrast to the recent report showing Kenya’s 0.73% gain against the dollar.

“If the local currency makes a rebound from the depreciation as the current trend suggests, it will spell a sigh of relief for importers that pay foreign institutions as well as hard currency borrowers who have taken forex losses hit by the sustained weakening of the shilling,” BusinessDaily’s report reads in part.

“The shilling’s recovery will, however, spell doom for expatriates, locals with dollar-denominated salaries, exporters and recipients of diaspora remittances who have reaped a significant windfall from its devaluation,” the report adds.

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