The Kenyan shilling has continued to lose its value, despite the Central Bank of Kenya (CBK) increasing interest rates last month in an attempt to mitigate the currency’s decline.
As of January 8, the Central Bank of Kenya (CBK) reported exchange rates of 158.3 against the dollar, 200.17 against the sterling pound, and 172.68 against the Euro.
In December 2023, the CBK raised the base lending rate from 10.5% to 12.5% in an effort to alleviate pressure on the shilling and combat inflation, according to CBK governor Kamau Thugge. However, these measures have faced challenges, with concerns arising about the sustainability of the country’s external debt, contributing to a decline in investor confidence.
The effectiveness of the monetary policy to stabilize the exchange rate is now in question. Since the beginning of 2023, the shilling has lost over 27% of its value against the dollar, prompting speculation of a potential additional interest rate hike during the CBK’s next policy-setting meeting next month.
The shilling’s depreciation against the US dollar has accelerated, averaging a daily decline of 0.16 percent or 16 cents since the monetary policy tightening on December 5. This is a notable increase from the average daily change of 0.069 percent in the month before the interest rate adjustment.
On a year-to-date basis, the currency has depreciated by 22.4%, trading at KES153.4, in addition to the 9% depreciation recorded last year. Despite the CBK rate hike being anticipated to boost confidence among foreign investors and potentially increase demand for the Kenyan shilling, the currency’s depreciation continues to be a significant concern.
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