The value of dollar deposits in Kenyan commercial banks has reached a record high of Sh1.185 trillion by the end of June, driven by the depreciating value of the Kenyan shilling. Data from the Central Bank of Kenya reveals that the shilling equivalent of these deposits rose by Sh93 billion in June alone, resulting in a year-to-date growth of 28.7 percent or Sh264 billion.
While some of the increase is attributed to a growth in the actual stock of dollars, analysts believe that the significant depreciation of the shilling against major currencies, especially the US dollar, is the primary factor driving the surge in value.
Account holders are benefiting from double-digit capital gains as the shilling’s value weakens against major currencies, particularly the US dollar. The trend reflects increased demand for dollar deposits as a hedge against potential forex market shocks. However, this surge may also exert pressure on the forex market in the future.
Opinion
The surge in dollar deposits in Kenyan banks is a reflection of the ongoing depreciation of the Kenyan shilling against major currencies, particularly the US dollar. As the shilling weakens, the value of dollar-denominated deposits rises in local currency terms, resulting in double-digit capital gains for account holders. The trend indicates that depositors are increasingly seeking to hedge against potential forex market shocks and safeguard their funds amidst the currency’s depreciation. However, the situation may also lead to increased dollar demand in the future, especially with impending payments for government-to-government oil imports and corporates repatriating dividends abroad, which could exert further pressure on the forex market.