Kenyan Shilling Expected To Drop Below KSh 150 Against US Dollar, Experts Explain Why

• FX Pesa lead market analyst Rufas Kamau attributed the decline of the Kenyan currency to the collapse of the government-to-government oil import deal with Saudi Arabia and UAE
• Cytonn chief executive officer Edwin Dande predicted the shilling would slide to 175 if steps were not taken to reverse the trend
• President William Ruto's government inked a deal with three international oil-producing companies in March 2023 to import oil on credit but the deal collapsed

The Kenyan shilling's freefall against the United States (US) dollar will likely extend to the year's fourth quarter.

On Tuesday, August 29, the Central Bank of Kenya (CBK) indicative exchange rate quoted the shilling at 145.05 per unit against the dollar buying and 145.25 selling.

Why KSh against dollar could hit 150

In an exclusive interview with TUKO.co.ke, FX Pesa lead market analyst Rufas Kamau attributed the decline of the Kenyan currency to the collapse of the government-to-government oil import deal with Saudi Arabia and the United Arab Emirates (UAE).

Kamau explained that oil marketers were back in the market looking for dollars to settle the six-month debt due to the government's U-turn.

"Petroleum imports (fuel and lubricants) command a staggering 28% of local dollar demand. Now that the oil deal collapsed following pressure from the International Monetary Fund (IMF), oil marketers are back in the market seeking dollars to honour the six-month debt due in September," he said.

Kamau added that most big companies in the country are owned by foreigners who are also in the market buying dollars to help them liquidate profits.

"Huge foreign ownership of Kenyan stocks means that commercial banks are back in the market buying dollars to help them liquidate profits and dividends. For instance, Safaricom released dividends today, and an estimated 40% is foreign-owned," Kamau noted.

The FX Pesa market analyst projected the shilling will depreciate to 150 against the dollar by September when the oil debt will be repaid.

"Official CBK rates are expected to accelerate to KSh 150 by the end of September when the oil deal debt is settled. While the shilling may expect significant support from weakening Chinese import prices, rising diaspora remittances, and fiscal tightening from this month's housing levy, a rush to grab dollars for petroleum imports may cause temporary upside volatility," he added.

Cytonn CEO speaks on depreciating shilling

On his part, Cytonn chief executive officer Edwin Dande predicted the shilling would slide to 175 if steps were not taken to reverse the trend.

"Without reassuring steps, I’d bet another 15% or so depreciation, so plan for 175 rate," he posted on X.

Dande highlighted six steps the government could take to avoid further weakening of the shilling, including improving the business environment to allow investors to flock in.

"A lot more focus on improving the business environment to spur economic growth; too much bureaucracy… make the business environment so friendly, so easy that investors shall just flock in and supplement local investors," he expounded.

Why fuel import deal failed

President William Ruto's government inked a deal with three international oil-producing companies in March 2023 to import oil on credit.

Ruto assured the deal would see the shilling gain strength against the US dollar to trade at KSh 120 per unit dollar.

However, the shilling continues to weaken against the US dollar.

The government sent a delegation to UAE to renegotiate the deal ahead of the first payment of $500 million (KSh 72.6 billion) to the companies.

This came after the IMF raised concerns that the deal could expose public funds, urging the state to allow private sectors to take full control.

Petroleum Outlets Association of Kenya (POAK) chair Martin Chomba told TUKO.co.ke that the IMF concerns could fit different models employed by the government on the oil deal set to be reviewed in December 2023.

"The government has been trying different models of going about the government-to-government deal. The scheme was up for review in December 2023, but the IMF is trying to push the government not to offer guarantees, which would expose the consumers... because it does not have money of its own. The guarantees mean the government will use public funds to mitigate private office," said Chomba.