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Jan 25th
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Home Business Shilling depreciation: A curse and a blessing?

Shilling depreciation: A curse and a blessing?

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Kenyan exporters continue to gain from the depreciation of the shilling against other world currencies while importers suffer as domestic value added prevails over the increase in the cost of imported goods in the country.
With the down trend of the shilling against hard currencies, Kenyans will bear the brunt as commodity prices are expected to hike to unimaginable levels, while exports such as tea and horticultural products see traders smile all the way to the bank as they gain from the falling state of the shilling.

This month the shilling has continued to show a downward trend, recording the worst fall in all times on demand of the dollar.On Tuesday the Kenyan shilling fell to Ksh 84. against the dollar down from Monday's trading of Sh83 and has maintained the same exchange rate as of Wednesday.
The depreciation of the shilling against major currencies has been attributed to greed, fear, and anxiety caused by the alarming inflation rates. Last month inflation hit a worrying 9 per cent, threatening to hit the two digit mark, and also surpassing the Government’s target of 5 percent, hence sending alarms in the business circles.

Escalation of the food and oil prices as a result of the heavily effects of a drought-inspired famine in some parts of the country and the volatile political situation of the Middle East nations that surged global fuel prices are the obvious reasons why inflation has assumed the upward trend in the country.  

The impact of both has been the depreciation of the Kenya shilling against the hard currencies. According to the Central Bank of Kenya (CBK) financial experts, a small swing in inflows or outflows can result in a significant shift in the value of the Shilling. 

They further state that a small cushion of supply over demand, a little upward shift in demand or decrease in supply may result in significant price disruption.In March 2011 CBK raised it lending rates to 6 percent saying their action was aimed at cushioning the country from inflations. 

Rising of CBR rates by CBK was driven by the fact that low rate of interest and high liquidity in the banking system, spawned by low effective demand rate for credit in the money markets was termed a cause of the currency depreciation and inflation.

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