As at the close of business yesterday the Kenya Shilling had dropped by 0.2% to close at KES 83.6764 per US Dollar. Over the course of trading the shilling fell past the 84 to the dollar mark to trade at KES 84.60 per USD. The shilling has exhibited continuous depreciation for the last six days and this is the longest losing streak observed on the Kenya Shilling for the last 9 months.
In response to this the Central Bank of Kenya (CBK) intervened by selling dollars in the market to mop up excess liquidity and increase the foreign currency available in the economy.
The depreciation of the Kenya Shilling can be somewhat attributed to the following:
- The increased outflow of capital from the economy as less foreign investors are attracted to the short term government securities due to the falling yields observed on them. This increased demand for dollars has put downward pressure on our local currency and consequently caused the fall we are observing.
- The higher number of bids rejected by the CBK at recent auctions and also the large amount money in debt requirements paid out (coupons and interest) by the CBK to foreign investors has increased local demand for the US Dollar.
- Increased demand for dollars from oil importers.
Increased demand for the dollar implies that players are having to pay more shillings for the dollar and this puts downward pressure on the Kenya Shilling causing it to depreciate.