The official exchange rate of the shilling against the dollar has surged past the 150-unit threshold, signaling a concerning period of consistent depreciation. Since the year’s commencement, the shilling has witnessed a 17.7 percent depreciation against the dollar—more than double the rate experienced in the entirety of 2022.
Key Points:
- Magnitude of Depreciation:
- The shilling’s depreciation has accelerated, with a 17.7 percent decline against the dollar in 2023, highlighting the gravity of the situation.
- Official Exchange Rate and Market Rates:
- The Central Bank of Kenya’s indicative rate depicts a buy price of Sh149.84 and a selling rate of Sh150.04. This averages to 149.94.
- Commercial lenders are retailing the dollar at Sh154.95 to Sh157 and buying at Sh141 to Sh149.95, indicating a widening gap between official and retail selling rates.
- Banks’ Response and Market Dynamics:
- Banks have been selling dollars above Sh150 since late August. Resistance around Sh156 suggests the currency might be finding its true rate after months of depreciation.
- The reopening of the interbank dollar market in April and the relaxation of Central Bank of Kenya rules have allowed the exchange rate to stabilize through natural demand and supply dynamics.
- Root Causes and Policy Adjustments:
- Treasury Cabinet Secretary Njuguna Ndung’u attributes the shilling’s slide to a “process of adjustment” from historical policy missteps in currency management.
- Previous policies maintained the shilling’s value despite shifts in the economy, leading to misalignment with the real economy.
Conclusion: The escalating depreciation of the shilling against the dollar requires immediate attention. It affects importers, merchant traders, and has implications for external debt. Swift measures and careful policy adjustments are crucial to stabilize the exchange rate and protect the economic interests of the nation.
