Economic Concerns Mount as Shilling Depreciates Post-Interest Rate Hike
Despite the Central Bank of Kenya (CBK) raising interest rates to combat the weakening local currency, the Kenyan shilling has depreciated at a faster pace than expected.
Following the implementation of more stringent monetary measures on December 5th, the devaluation of the Kenyan shilling in relation to the US dollar has surged to an average of 0.16% per day. This represents a notable escalation compared to the previous average daily fluctuation of 0.069%. The swift decline of the shilling has prompted concerns about the effectiveness of implementing stricter monetary policies to address struggling foreign currency markets. As a result, there is now speculation about the possibility of a further increase in interest rates, which may be discussed at the upcoming policy-setting meeting of the CBK scheduled for next month.
Ever since the substantial rise in rates, the Kenya Shilling has experienced a decline in value against the US dollar. On Friday, it was valued at Sh158.3, a decline from Sh153.28 on December 5. Analysts believe that the impact of the rate increase may have been limited due to its late implementation during the depreciation stage of the currency. Some point out that the increase in interest rates had already been priced in the market.
In a surprising move, the Central Bank of Kenya (CBK) recently increased the Central Bank Rate by two per cent, raising it from 10.5 per cent to 12.5 per cent. The CBK Monetary Policy Committee-MPC defended this choice by highlighting the ongoing strain on domestic prices caused by the currency rate's decline. To demonstrate this, the CBK clarified that the depreciation of the currency rate contributed to about three percentage points of the uptick in consumer prices, with November's inflation rate standing at 6.8 per cent.
Additionally, the CBK highlighted the increase in foreign debt service as a counterbalance to the government's intended fiscal contraction. Dr Kamau Thugge, the governor of the CBK, acknowledged that the shilling had depreciated more than intended after the foreign exchange market was adjusted in response to what the apex bank believed was an overvaluation of the local currency.
“We thought the shilling had been overvalued for quite some time; there have since been significant adjustments, and we now feel that the shilling has depreciated enough and actually may have overshot the rate required for equilibrium,” Dr Thugge said on December 6.
Comments (4)
The evidence of incompetence from this administration keeps on mounting as KsH.keeps plummetting.
Can’t agree more and only solution they have is exporting cheap labor and his using levy. It’s time they realized over taxing citizens will absolutely do nothing ..
Can’t agree more and only solution they have is exporting cheap labor and his using levy. It’s time they realized over taxing citizens will absolutely do nothing ..
The core rotten matter of this issue is the unauthorized debts taken by both Uhuru and Ruto without the approval of parliament. According to the 2010 constitution states that only parliament has power to approve the country debt and must be used only for the development of infrastructure period. Hence here's where the Executive power cuts corner and at times even forcing things to go underground. Thus rewarding the MPigs with heft bonus and salary that we had experienced over the years. This type of national debt are illegitimate to a nation by law and are considered to be rather personal since its expenditure are unclear to both the public and Govt Financial officials. This are known as Odious debt, which need a 3rd Kenyan liberators to stand tall and challenges the Administration at the world bank court so that it can be cancelled and thus relieving the on-going economic pain of commom wanaichi like Wajiko. This is a good fight when it comes for people money. Otherwise elect me to start the fire going here right on the ground - vote Nah/Yeah?