Kenya Shilling Continues to Lose Value Despite CBK Interest Rate Hike

 

The downward spiral of the Kenyan shilling against the United States (US) dollar and other global currencies shows no signs of slowdown. President William Ruto's promise to stabilise the shilling failed.  On Monday, January 8, the Central Bank of Kenya (CBK) quoted the shilling at 158.3 against the dollar, 200.17 against the sterling pound and 172.68 against the Euro. Why CBK increased base lending rate In December 2023, the CBK increased the base lending rate to 12.5%, up from 10.5%. CBK governor Kamau Thugge said the move to tighten monetary policy aimed to reduce pressure on the shilling, which also exacerbates inflation. The CBK's efforts to stabilise the exchange rate have been met with challenges and concerns about the sustainability of the country's external debt, further weighing on investor confidence. As a result, the diminishing purchasing power of the Kenya shilling poses significant challenges for businesses and consumers alike. How IMF funding could stabilise the shilling FX Pesa's education partner Samson Mzera told TUKO.co.ke that the imminent injection of funds by the International Monetary Fund (IMD) was poised to tackle current financial gaps. This is expected to alleviate the pressure on domestic borrowing and enhance investor confidence. "A potential; turning point is on the horizon with the International Monetary Fund's approval for an additional $939 million (KSh 148 billion) in financing for Kenya. Although further approval is pending, this injection of funds is expected to address existing financial shortfalls, easing the strain on domestic borrowing and fostering increased investor confidence," Mzera explained. Mzera noted that internationally, there was an anticipation among traders for the US Federal Reserve to start easing interest rates. "Data from the Chicago Mercantile Exchange FEDWatch Tool indicate a high probability of a rate cut in May 2024 at 75% and a cut in June 2024 at 93%. While projecting interest rates six months ahead may seem speculative, prevailing market sentiment suggests that rates have reached their peak," he added.

by  Japhet Ruto