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Why is the Kenyan Currency Performing so Poorly?

The Kenyan shilling has now been in near-constant decline for almost three years – and there’s little sign of a recovery anytime soon. In February 2020, just before the outbreak of the coronavirus pandemic, the shilling was trading at 100.60 against the US dollar. Since then, the greenback has strengthened by 33% to trade at 133.77 at time of writing in mid-April 2023. The declines have become particularly steep in the last 12 months, in which time the shilling has lost almost 15% in value. Many emerging market currencies, including the shilling, have been hit by the global hike in interest rates led by the Federal Reserve in the US. This has caused major problems for the shilling. Higher rates on the US dollar, which is also deemed one of the world’s safest financial assets, have helped make the currency even more attractive to foreign exchange traders and further dampened the appeal of holding riskier currencies such as the shilling. While the Central Bank of Kenya (CBK) recently increased rates by 75 basis points to 9.5%, partly to prop up the shilling’s appeal, this is unlikely to be enough to halt the currency’s decline.