Kenyan banks are witnessing a substantial increase in dollar deposits, soaring by Sh528.56 billion over the first ten months of 2023 due to the ongoing depreciation of the Kenyan shilling against the US dollar.
Central Bank of Kenya (CBK) data reveals a remarkable 57 percent surge in dollar deposits, reaching Sh1.449 trillion by the end of October. This surge is notably linked to the shilling’s 22 percent depreciation against the dollar during the same period.
The weakened shilling has translated into tangible gains for dollar depositors, with a Sh1 million equivalent now valued at Sh1.22 million by October-end. This appreciation of Sh220,000 excludes any interest paid by banks.
While some of the surge is attributed to the growth in the actual stock of dollars, the primary driver is the shilling’s depreciation against major currencies.
Businesses, particularly those reliant on importing, are grappling with challenges accessing dollars, compounded by a misalignment between the market exchange rate and that of the CBK.
The shilling’s struggles emanate from the US Federal Reserve’s interest rate hikes, leading to increased demand for the dollar and suppressing local currencies.
CBK’s recent decision to raise the base lending rate to 12.5 percent aims to combat inflation and protect the shilling from further depreciation against the dollar.
Despite concerns about rising interest rates and a weakening shilling impacting the budget deficit, there’s a glimmer of hope as recent CBK data indicates a potential stabilization of the shilling, shedding an average of three cents to the dollar since December’s start. This is a contrast to the average daily losses of 12 cents in November and 13 cents in October.
By: Montel Kamau
Serrari Financial Analyst
13/12/2023
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