Treasury Cabinet Secretary Prof. Njuguna Ndung’u made some startling statements on Monday about why the Kenyan shilling has been rapidly losing value against the U.S. dollar lately.
In submissions to the National Dialogue Committee, Ndung’u pointed to two key issues that he said have “created an imbalance” in Kenya’s managed exchange rate system, which tries to control the shilling’s value.
“First, the exchange rate was not allowed to adjust naturally, while prices inside Kenya, especially for things like infrastructure projects, were rising quickly. This is a big policy mistake because the exchange rate is supposed to automatically balance the economy,” Ndung’u said.
He went on to say this mismatch meant “the real exchange rate was increasingly out-of-whack, the economy and production was becoming less competitive globally. Foreign investment was declining as a result.”
Ndung’u asserted the only way to fix things was to “let the exchange rate depreciate, or lose value, rapidly.”
In addition, he said “this was also driven by tight monetary policy in the US that strengthened the dollar globally and made dollars more scarce: the lack of dollars pushed up the price.”
Ndung’u concluded by saying “Kenyan prices rising to match the shilling’s depreciation created inflation pressures.”
The comments come as regular Kenyans grow more worried about rising costs of living and imported goods as the shilling rapidly loses value compared to the dollar.
The official exchange rate of the shilling against the dollar recently crossed the 150-unit mark following a period of sustained and consistent depreciation that has narrowed the gap between the official and retail selling rates of the US currency.
Since the beginning of the year, the shilling has depreciated by over 17.7 percent against the dollar, which is more than double the 8.3 percent it shed against the unit in the whole of 2022.
