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New funding pledges of nearly US$900 million ahead of a Eurobond repayment deadline are failing to defend Kenya’s shilling from fresh lows, with analysts forecasting further weakness as the rising cost of imports heightens demand for dollars.
Africa’s second-worst performing currency for 2024 fell to a record 162,29 against the dollar on Monday, extending losses since the start of 2023 to more than 23 percent.
The worst-case scenario among five analysts and traders polled by Bloomberg is for the shilling to depreciate to as low as 210 against the US currency by the end of the year, with the mildest forecast at 171. Further weakness will result in additional increases in the cost of imports and prices of items that include foreign-currency adjustments, such as electricity. Debt-service costs will also rise as the government races to raise funding against a June-deadline for the US$2 billion eurobond.
“The government will have to chip in more in terms of repaying that loan,” said Timothy Kiarie, a Nairobi-based financial analyst at foreign-exchange broker Scope Markets.
“Given that fundamentals haven’t changed much and that the Central Bank of Kenya is still struggling with dollar reserves, a widespread panic could accelerate the loss on the Kenya shilling.”
The shilling traded 0,2 percent lower at 162,27 against the dollar at 1:50 p.m. in Nairobi, extending losses for the year to 3,4 percent. Yields on Kenya’s 2024 Eurobond fell 96 basis points to 13,40 percent.
Kiarie forecasts that the shilling will weaken to 210 against the dollar by year-end. — Bloomberg.
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