Kenyan Shilling to Hit 107 Against The US Dollar by 2016

There are concerns from economic analysts that the shilling could trade at 107 against the US Dollar by the end of the year 2015 as demand for the greenback from importers continues to grow. Analysts have predicted that the Kenyan currency will come under pressure in the last half of this year to try and close the year at 103 against the dollar.

They further say that if Kenya lets her local currency to depreciate further, then import substitution will happen where for instance, if food imports become more expensive for Kenya, then Kenya will be forced to produce locally.

From early last month, the Kenyan Shilling had achieved some relative stability after the Central Bank of Kenya (CBK) tightened liquidity in the market creating hope for long-lasting stability.

During the recent Monetary Policy Committee meeting, the Kenyan Shilling regulator raised the Central Bank Rate by three cumulative points from the initial 8.5 percent.

Despite all this effort of trying to shield the Kenyan Shilling against the Dollar, the reality is that the Shilling has continued to depreciate against major world currencies.

The Central Bank of Kenya decided to leave its interest rate unchanged at 11.50 percent during an emergency meeting that was held last week noting that whereas the foreign exchange market was volatile in early July, it had also stabilized in part due to the impact of Central Bank’s measures.

On Monday this week, the Kenyan Shilling closed at 101 to the Dollar but the market traders warned that the volatility of the Shilling was not over yet since the Shilling’s stability was being propped up by the rise in interbank rates that may or may not be sustainable for long.

Analysts have also raised concerns that the sharp increase in the fiscal and current account deficit will continue piling pressure on the Shilling in the coming months and that the only available solution is for CBK to tighten the monetary policy by pushing it to 12 or 13 percent in the next 12 months.