A Kenyan market analyst has projected that the shilling would weaken against the United States (US) dollar in the coming months. President William Ruto (left) had claimed the shilling would exchange at 120 against the US dollar. FX Pesa lead market analyst Rufas Kamau noted that a high demand for dollars from importers will depreciate the local currency, reversing the gains made in the last two months. In an exclusive interview with TUKO.co.ke, Kamau advised Kenyans with dollar accounts to continue saving, as the US currency will have more value than the shilling. “For anyone holding or earning dollars, it makes sense to convert some dollars to Kenya shillings for immediate expenditure. However, for long-term savings, fundamentals indicate that it is more likely that the Kenya shilling will slide back to previous lows and the dollar will hold value better than the Kenya shilling in the next two years,” Kamau explained. Why the US dollar will strengthen against Kenya shilling The market analyst projected dollar shortages due to a high import bill, paid mostly in US currency. Kamau noted that the US Federal Reserve was expected to maintain high-interest rates, which could strengthen the dollar against the shilling. “Imports will sooner or later scoop the new dollars in the markets, and we will be back to the same problem of dollar shortage. With US inflation rising to 3.5% in March, the US Federal Reserve will likely hold rates higher for longer, which could strengthen the dollar further. This is expected to help the dollar recover against the Kenya shilling,” he expounded. On Wednesday, April 17, the Central Bank of Kenya quoted the shilling 131.01 against the US dollar, having appreciated by over 19% since February. What’s the impact of a weak shilling? Kamau noted the cost of Brent oil dropped by 0.47% but was still trading at $89 (KSh 11,748) per barrel, a 16% rally year-to-date. He opined that fuel hikes could occur in the coming months if the shilling starts to lose ground against the US dollar and the oil price rally continues above $90 (KSh 11,925) per barrel. “Early this week, the de-escalation efforts between Israel and Iran gained ground. Brent oil dropped 0.47% but is still trading at $89, a 16% rally year-to-date. The Kenya shilling has gained 19.72% against the dollar in the same period, which means that the forex gains more than offset the oil price rally. If the shilling starts to lose ground against the dollar and the oil price rally continues above $90 per barrel, we could start experiencing fuel hikes in the oncoming months.” Why shilling appreciated Central Bank of Kenya governor Kamau Thugge said the shilling was overvalued by between 20 and 25%. The regulator increased the base lending rate to 13% in February 2023 from 12.5% in December 2023. This, combined with the partial settlement of the Eurobond, saw the shilling appreciate. Thugge met with bank officials and senior staff from the Treasury to persuade them against setting aggressive dollar bids.