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The Kenyan shilling has lately been making headlines for all the right reasons! It has made an impressive comeback after a four-year slump, appreciating a whopping 19% against the US dollar in just two months.

At its weakest this year, the exchange rate peaked at 1 USD to KES 163.50 on February 25, 2024. This means that Kenyans desperately needed more shillings to buy dollar-denominated goods. However, the recent improvement has boosted the exchange rate significantly.

Today, it only takes 131.50 Kenyan shillings to buy a US dollar, a difference of 32 shillings compared with the highest rate this year. Notably, the average exchange rate for the past two months has been 135.041.

The Kenyan shilling’s impressive rally can be attributed to a confluence of positive economic developments. Market responses have been a key driver, with the February 12th, 2024 issuance of a $1.5 billion Eurobond being oversubscribed by a factor of three.

The Central Bank of Kenya’s strategic moves, including two interest rate hikes totaling 250 basis points, also helped to curb inflation and attract even more foreign investors seeking higher returns.

Additionally, a significant inflow of dollars into the Kenyan economy this year bolstered foreign exchange reserves and strengthened the shilling’s position.

This positive change has the potential to affect your life in many ways, so let’s break down what the shilling revival means for you, the Kenyan.

One immediate benefit of a strong shilling is the possibility of lower import prices. Recall that the highest dollar exchange rate this year was 163.50 shillings, while today it sits at 131.50 shillings.

This means you’ll need a few shillings to buy those coveted electronics, fuel for your car, or even essential medicines whose prices are usually based on the value of the dollar.

Essentially, your purchasing power increases, potentially saving you money on everyday items and freeing up some breathing room in your budget.

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The stronger shilling also brings positive news for the Kenyan government, which carries a significant amount of debt denominated in dollars. With the shilling’s appreciation, the overall debt burden becomes less cumbersome.

President Ruto himself highlighted this. He noted how the currency’s strength has reduced Kenya’s debt by Sh722 billion and saved the country Sh917 billion in debt service costs over six years.

Ultimately, this translates to more resources available for the government to invest in areas that directly impact your life, such as healthcare, education, and infrastructure.

While a strong shilling benefits consumers, it is important to recognize the potential impact on Kenyan businesses. Cheap imports can create stiff competition for local manufacturers, potentially leading to job losses in some industries. This is because products manufactured overseas may be so cheap that substitutes manufactured in Kenya will struggle to compete.

The long-term impact of a strong shilling on Kenya’s economy will depend on a variety of factors. If productivity and competitiveness in Kenya’s industry is accompanied by a strong shilling, the overall impact could be positive, leading to sustainable economic growth.

This will create more employment opportunities and potentially improve overall livelihoods for the benefit of all.