Shilling to hit Sh121 against dollar in 2023

Tuesday, August 9th, 2022 01:43 | By
Shilling drops further amid falling forex reserve
Kenyan currency. PHOTO/Courtesy.

Depreciating value of the Kenyan shilling against the US dollar will carry on into 2023, according to new projections by Fitch Solutions.

The rating agency has attributed this to higher energy prices and inflationary pressures for this, noting that the devaluing trend may also be amplified by election-related uncertainty, which typically saps confidence.

Resultant effect, according to the predictions in its latest review, may push the shilling to Sh120.95 per US dollar by the start of the New Year.

“In 2023, we forecast that the currency will weaken only by 3.4 per cent to an average of Sh120.95/USD, as a wide current account deficit is partly offset by a rebound in real GDP growth and investor confidence,” it noted.

Trade deficit

The widening trade deficit will also have a negative impact for Kenyan Shilling beyond this year, according to the review.

Widening the trade deficit, which is the difference between the value of a country’s imports and the value of its exports, typically reduces the incomes of domestic workers, pushing many to lower income brackets as has been the case for several months now.

Families with lower incomes generally find it much harder to save. Therefore, increasing trade deficits naturally reduce national savings among the working class. Should the national elections – being held today be disputed, particularly the presidential polls, then the analysis anticipates an inevitable investor flight, whose investments may be channeled to other regional markets.

Moreover, Fitch said, domestic firms are facing increasing delays in the processing of FX requests, which is raising fears of a foreign-currency shortage.

“Because of Kenya’s exposure to high commodity prices and its large twin deficits, investors are assigning the country a risk premium over regional peers,” it added.

Meanwhile, according to Bloomberg, the shilling slid to a record low against the dollar yesterday, widening its fall since the start of the year to 5.7 per cent, as greenback supply dries up ahead of elections scheduled for today and amid rising demand for key imports.

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