Kenyan Shilling Weakens Across Major Global Markets, Loses Value Against UGX, TZS

• Kenya's currency lost value against prominent currencies such as the Euro, Pound Sterling, US Dollar, and Japanese Yen
• Kenyan shilling also lost value against the South African Rand, Tanzania shilling, and Uganda shilling in Q3 of 2023
• The Central Bank maintained the Central Bank Rate (CBR) at 10.50% throughout the entire third quarter of 2023

Elijah Ntongai, a journalist at TUKO.co.ke, leverages more than three years of expertise in financial, business, and technology research, providing insights into both Kenyan and global economic trends.

A recent report has shown that the Kenyan shilling experienced a notable depreciation against major international trading currencies during the third quarter (Q3) of 2023 compared to the corresponding quarter in 2022.

According to the report by the Kenya National Bureau of Statistics (KNBS), Kenya's currency ceded ground against prominent currencies such as the Euro, Pound Sterling, US Dollar, and Japanese Yen by 30.3%, 29.7%, 20.6%, and 15.3%, respectively.

Notably, the Kenyan shilling lost against the South African Rand, Tanzania shilling, and Uganda shilling in Q3 of 2023.

Concerns over the depreciation of KSh

In an exclusive interview with TUKO.co.ke, FX Pesa lead market analyst Rufas Kamau was concerned that the depreciation would drive away investors from Kenyan bonds.

"Considering the current US inflation rate of 3.7%, an investor purchasing 1-year US treasuries can expect a return of 5.487%. From a Kenyan perspective, this translates to an attractive return of 25.5%, surpassing the yields offered by Kenyan bonds.

This substantial difference in returns is expected to lead investors to shift their focus away from Kenyan bonds in pursuit of higher yields in currencies that are not experiencing rapid depreciation," Kamau explained in the past.

Other economic indicators

Despite the challenging economic environment, the Central Bank maintained the Central Bank Rate (CBR) at 10.50 per cent throughout the entire third quarter of 2023.

This was in contrast to the preceding year, when the rate was kept at 7.50% in July and August and revised upwards to 8.25% in September 2022.

Furthermore, the Nairobi Securities Exchange (NSE) 20 Share index, considered a barometer of the Kenyan stock market, recorded a decline of 12.2% in Q3 of 2023 compared to the same period in 2022.

The index dropped from 1,717.7 points in September 2022 to 1,508.0 points in September 2023, reflecting a decline in investor confidence and overall market performance.

Agricultural production drives Kenya's economic growth

In other related news, the KNBS report showed that Kenya's economy witnessed a 5.9% growth in the third quarter (Q3) of 2023, significantly driven by a rebound in the agricultural sector.

The agriculture, forestry, and fishing sectors demonstrated a notable 6.7% growth in the current quarter, a stark contrast to the 1.3% contraction observed in the same period of 2022.

The enhanced performance was attributed to favourable weather conditions prevailing throughout the initial three quarters of 2023.