Kenyan Currency Under-Valued – Central Bank Governor

Kenyan Currency Under-Valued - Central Bank Governor

The shilling reached a new all-time low, trading at 150 shillings to the dollar, marking a 24% decline year-on-year. Back in October 2018, one dollar was equivalent to 100 shillings.

Kamau Thugge, the governor of the Central Bank of Kenya, shared his perspective on the matter during a parliamentary committee meeting. He explained that the shilling has been overvalued for several years, with both the International Monetary Fund and the World Bank believing it to be overvalued by 20% to 25% about five years ago.

The central bank governor acknowledged that efforts were made to artificially maintain a strong exchange rate, but this came at the expense of depleting international reserves. He emphasized that the country’s foreign exchange reserves are currently sufficient to address any emergencies, even though they cover less than four months’ worth of imports.

The recent depreciation of the shilling is mainly attributed to the strength of the US dollar, driven in part by high yields on US Treasury bonds.

This depreciation has resulted in increased costs for imports and has added to Kenya’s debt burden, which stood at more than 10,100 billion shillings (64.4 billion euros) by the end of June, equivalent to approximately two-thirds of the country’s gross domestic product.

Since his election in August 2022, President William Ruto has implemented a series of tax increases and new taxes aimed at boosting government revenue and restoring the country’s financial flexibility.

However, these measures have put significant pressure on purchasing power, causing confusion and discontent among the population. President Ruto had promised during his presidential campaign to alleviate the financial hardships of the poorest Kenyans.

The Kenyan economy, which is a key player in East Africa, has faced serious challenges in recent years, including the impact of COVID-19, the repercussions of the conflict in Ukraine, and a severe drought in the Horn of Africa. As a result, economic growth slowed to 4.8% in the previous year, down from 7.6% in 2021, and growth forecasts for 2023 are lower compared to 2022.

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