The Kenyan Shilling has undergone substantial depreciation against major international currencies, raising concerns among citizens regarding its implications for their savings. In 2023, the Kenyan shilling depreciated by 27% against the US Dollar and is currently valued at approximately KES 160 against the Dollar.
This depreciation is predominantly influenced by a confluence of domestic and global economic factors, encompassing inflation, trade imbalances, changes in interest rates, and the impact of speculation in the currency market. Anticipated future depreciation prompts investors to engage in mass selling, creating a self-fulfilling prophecy and further contributing to the currency’s decline. Despite efforts by the Central Bank of Kenya to maintain stability, these economic dynamics manifest at the individual level.
A direct consequence of a depreciating currency is the diminished purchasing power of consumers. Imported goods become more expensive, leading to elevated prices for everyday items such as fuel, food, and essentials. Consequently, the real value of savings erodes as individuals find themselves spending more for the same goods and services.
One potential strategy to alleviate the impact of currency depreciation is to explore investments in money market funds (MMFs). MMFs are investment vehicles that aggregate funds from diverse investors and invest in short-term, low-risk instruments such as Treasury bills and certificates of deposit. These funds aim to furnish investors with a consistent return while safeguarding capital.
Essentially, MMFs offer a means to earn a return that matches or surpasses the rate of inflation, preserving the purchasing power of savings over time. Additionally, money market funds tend to be more stable than riskier investment options, making them an apt choice for conservative investors seeking to protect their capital. Diversifying one’s investment portfolio by allocating funds across various asset classes, including equities, bonds, and money market funds, can further mitigate the impact of currency depreciation on overall savings.