The Kenyan shilling is not a free float currency according to a report dubbed ‘Kenya’s Economic Puzzle’ by Amana Capital farther casting doubts on the resilience of the shilling.
Several economic analysts in the past have hailed the resilience of the shilling against the US Dollar with some predicting doom for the local currency within a short-term.
Analysts from Amana Group now say that the shilling is not that “well” and that it has been overhauled by 30 percent, something that might make Kenya’s exports expensive as compared to other countries.
The shillings exchange rate has been dropping over the years. For instance, in 2009, the rate was at 72 shillings to the US Dollar. Currently, the exchange is between 100 and 101 shillings to the US Dollar, a 20 percent devaluation.
“This means that the shilling has been overhauled by 30 percent,” said Reginald Kadzutu from Amana Capital.
The devaluation of the shilling has made lives of the majority of Kenyans difficult. 10 years ago, the consumer price index was at 97 shillings. Currently, the consumer price index is at 192 shillings. Kenyans are, therefore, paying 192 shillings for an item they paid 97 shillings in 2009.
The CBK, through its Governor Dr. Patrick Njoroge, have often refuted the claims of the overhauling of the shilling. At one point, Governor Njoroge accused the International Monetary Fund (IMF) of “unfairly valuing the shilling.”
However, analysts from Cytonn Investments gave the following sentiments:
- The shilling continues to enjoy the narrowing of the current account deficit with preliminary data on balance of payments indicating continued narrowing to 4.7 percent of GDP in the 12-months to February 2019, from 5.5 percent recorded in February 2018.
- The decline of the current account deficit has been attributed to improved agriculture exports, increased diaspora remittances, strong receipts from tourism, and lower food and SGR-related equipment relative to 2017.
- Kenya’s diaspora remittances increased by 11.1 percent to USD 221.0 million in March 2019, from USD 199.0 million in February 2019, and the 12-months cumulative inflows having increased by 26.3 percent to USD 2.7 billion in March 2019, from USD 2.2 billion in March 2018