The Kenyan Shilling’s recent surge against the US dollar, currently hovering around 1 usd to ksh 127.19, has helped reduce import costs for the Kenyan economy.
As the Central Bank of Kenya (CBK) projects, this stronger shilling is translating to a significant benefit for importers – a potential 11% rise in imports this year.
Understanding how exchange rates work is important here. Take the us dollar to ksh price, for example.
A strong shilling means that fewer shillings are needed to buy the same amount of goods in dollar value. This reduces the high cost of Kenyan businesses and consumers who rely on imports.
Cheaper imports could reduce supplies brought to everyday prices, increasing consumer purchasing power and potentially stimulating economic activity.
Companies benefit from cheaper raw materials and equipment, which can improve efficiency and operating profitability.
The positive effect also extends to public debt. The appreciation of the shilling has already pushed Kenya’s public debt to Shs. 800 billion, reducing the worrying debt to GDP ratio by 5%.
Several factors have contributed to the Kenyan Shilling’s newfound strength.
Major financings from the International Monetary Fund and the World Bank have played an important role in infusing much needed investor confidence.
The successful issuance of Eurobonds in February 2024 further strengthened this confidence. In addition, sound fiscal policies implemented by the government and improved foreign exchange reserves have also contributed to the strengthening of the shilling.
However, the flip side of the coin highlights the potential challenges associated with a strong shilling. A stronger currency will encourage imports rather than exports, potentially creating a trade deficit as imports exceed Kenya’s exports. This could have a negative impact on the nation’s balance of payments.
Furthermore, Kenya’s exports may be less competitive in the global market due to higher costs compared to products produced in countries with weaker currencies.
This could lead to a decline in export revenue and potential job losses in export-oriented industries.
Kenya has a history of using controls to manage foreign exchange and balance of payments pressures. While these controls might seem like a quick fix, they can distort the economy and lead to overvalued exchange rates that favor imports over exports.
The current situation, while beneficial for consumers and some businesses, presents a challenge for policymakers. They need to strike a balance between promoting economic growth and maintaining a competitive export sector.
For businesses and individuals involved in international trade, staying informed about exchange rates is paramount. This includes not just the usd to ksh rate, but also the euro to ksh, pound to ksh, and any other relevant currency pair.
Knowing the current exchange rate empowers them to make informed decisions about imports, exports, and foreign exchange transactions, ultimately contributing to a more stable and dynamic Kenyan economy.
