Our outlook was a 0.6% appreciation on account of gradual improvement in the export sector as Kenya’s trading partners continued to reopen their economies and stable forex reserves on the back of increasing diaspora remittance inflows, continued investor capital inflows and debt relief from other institutions.

The lowering of the credit rating was mainly on the back of Kenya’s high fiscal deficit coupled with the economic shocks occasioned by the challenges brought about from the impact of the COVID-19 pandemic. In May 2021, we released the Currency and Interest Rates Outlook – 2021 when Kenya had seen its sovereign rating downgraded by all the major rating agencies Standard & Poor’s, Fitch Rating and Moody’s.

We have previously released Currency outlook in 20 as summarized below

As a result, this week we shall be focusing in detail the factors that are expected to drive the performance of the Kenya shilling and thereafter give our outlook for 2022. Additionally, Kenya has seen affirmation of its Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'B+' with a Negative Outlook by Fitch Ratings, unchanged from the last review in 2021 as a result of the currency depreciation, increasing inflation and the risks arising from the upcoming August 2022 general elections. Global oil prices have also increased during the year, attributable to the persisting supply chain constraints following the COVID-19 pandemic, worsened by the current global geopolitical tensions following the Russia-Ukraine conflict, coupled with the reopening of economies globally, which has seen demand outpace fuel supply, further inflating the country’s import bill and consequently weakening the shilling. The poor performance of the shilling is mainly attributable to the increased dollar demand by energy and general importers, with Kenya largely being a net importer. Key to note, this the lowest the Kenyan shilling has ever traded against the USD. In 2022, the Kenyan shilling has continued with the depreciation trend experienced in 20, with the Kenyan shilling depreciating by 2.6% against the US Dollar (USD) to Kshs 116.1 as of 13 th May 2022, from Kshs 113.1 recorded on 3 rd January 2022.

Currency outlook 2021