Why Forex Movement Matters Even If You Are Not an Importer or Exporter
Why Forex Movement Matters
Even If You Are Not an Importer or Exporter
A Simple Guide for Everyone
What Is Forex?
Forex (short for "foreign exchange") is simply the rate at which one country's money can be swapped for another country's money. When people say "the dollar is at 130," they mean you need KSh 130 to buy one US dollar.
Many people think forex only matters to big businesses that import or export goods. This is a common mistake. Forex movements touch the life of every single Kenyan, whether you are a teacher, a farmer, a boda boda rider, or a retiree.
How Forex Affects You (Even If You Never Touch a Dollar)
- 1The Price of Fuel
Kenya imports nearly all its fuel, and fuel is bought in US dollars. When the shilling weakens against the dollar, it costs more Kenya shillings to buy the same barrel of oil. This means petrol and diesel prices go up. And when fuel costs more, everything that is transported by road (which is almost everything) becomes more expensive — food, building materials, clothes, everything.
- 1Food Prices
Kenya imports wheat, rice, cooking oil, sugar, and many other food items. These are priced in foreign currencies. A weaker shilling means the supermarket and the market stall have to charge you more for the same items. Even locally grown food is affected because of the higher fuel and fertilizer costs.
- 1Your Investments
If the shilling is weakening, foreign investors may pull money out of Kenyan bonds and stocks to avoid losses. This can push bond prices down and stock prices down. If you own any investments, even unit trusts or pension funds, you feel this effect.
- 1Government Debt
Kenya has borrowed billions in foreign currencies. When the shilling weakens, the government needs more shillings to repay the same dollar-denominated debt. This can lead to higher taxes or reduced government spending on services like roads, hospitals, and schools.
- 1School Fees and Medical Bills
If you pay school fees in dollars (for international schools or universities abroad), or if you receive medical treatment that uses imported medicines and equipment, a weaker shilling directly increases your costs.
A Simple Example
Mama Njeri runs a small restaurant in Nairobi.
She does not import anything herself. But she buys cooking oil, which is imported and priced in dollars.
When the dollar was at KSh 120: Her 20-litre tin of cooking oil cost KSh 3,600.
When the dollar rose to KSh 155: The same tin went up to KSh 4,650.
The result: Mama Njeri had to raise her food prices or accept lower profits. Either way, the forex movement hit her business directly — even though she never touched a single dollar.
Strong Shilling vs. Weak Shilling — What It Means
Here is a quick breakdown.
| Strong Shilling (e.g. $1 = KSh 120) | Weak Shilling (e.g. $1 = KSh 155) |
|---|---|
| Imported goods are cheaper | Imported goods are more expensive |
| Fuel prices tend to be lower | Fuel prices tend to be higher |
| Food prices are more stable | Food prices may rise |
| Government debt is easier to manage | Government debt becomes heavier |
| Foreign investors feel confident | Foreign investors may pull out money |
| Your savings hold more buying power | Your savings lose buying power on imports |
For the inflation link, read why inflation matters.
For how the Central Bank responds to forex pressure, read why you should watch the Central Bank Rate.
What You Can Do About It
You cannot control the forex rate, but you can make smarter decisions when you understand it:
- 1Stay informed: Check the exchange rate regularly. When you see the shilling weakening, expect prices to go up soon.
- 2Diversify your savings: If possible, hold some savings in stable foreign currencies (like a dollar account) as a hedge against shilling weakness.
- 3Time your big purchases: If you plan to buy something that uses imported parts (a car, electronics, building materials), buying when the shilling is strong saves you money.
- 4Understand your investments: If you invest in bonds, stocks, or unit trusts, know that forex movements can affect your returns. A weakening shilling may reduce the real value of your Kenyan shilling investments.
- 5Think about inflation: A weak shilling often leads to higher inflation. This connects directly to Guide 1 — make sure your investments beat both inflation and any forex-driven price increases.
One way to hedge forex risk is holding USD savings — read opening a USD account in Kenya from abroad.
Compare USD money market funds on Serrari as a hedge against shilling weakness.
KEY TAKEAWAY
You do not need to be an importer or exporter for forex to affect your wallet. The exchange rate touches fuel, food, school fees, medicines, investments, and government services. Understanding forex movements helps you plan ahead and protect your money from invisible losses.
Speak to a Serrari advisor to build a portfolio that accounts for inflation and forex risk.
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