The Kenyan shilling is expected to weaken against major global currencies due to demand for hard currency from foreign-owned banks looking to pay dividends, traders said, as quoted by Reuters.
Nairobi bourse-listed companies often have numerous foreign shareholders who must be paid their annual dividends in hard currency
This means that foreign owners must convert Kenyan shillings into hard currencies (USD, GBP, EUR) to pay dividends to international investors.
However, it was held steady on Thursday, March 13, compared with the previous session.
Commercial banks quoted the shilling at 129.20/129.60, the same range as Wednesday’s March 12 close.
Kenyan Shilling to Weaken as Foreign Banks Demand Hard Currency
According to the Central Bank of Kenya (CBK), the Kenyan shilling traded at Ksh 129.43 against the US dollar on Thursday, March 13.
Meanwhile, it was valued at Ksh 167.37 against the British pound and Ksh 140.89 against the euro.
Against regional currencies, the shilling stood at Ksh 28.33 per Ugandan shilling, Ksh 20.67 per Tanzanian shilling, and Ksh 10.85 per Rwandan franc.
The Japanese yen traded at Ksh 87.11 per 100 yen, while the South African rand stood at Ksh 7.04.
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The CBK Governor Kamau Thugge has in the past attributed the Kenyan shilling’s stability to remittances amid muted foreign exchange demand.
Diaspora remittances have been key in stabilizing the Kenyan shilling, especially last year when the currency had slid beyond the Ksh160 mark against the US dollar.
A decline in remittances could significantly impact the currency’s strength.
“If more foreign exchange comes in, then the exchange rate will tend to appreciate,” Governor Kamau explained. In essence, the more the dollar inflows into the country, the stronger the shilling.
He added, “If less and more goes out, the exchange rate will tend to depreciate.”
Remittances Make Shilling Stable
This means the shilling tends to weaken when the demand for dollars increases, particularly due to imports like oil.
Remittances from the US contribute the largest share, with January 2025 seeing over Ksh 30 billion sent back home, slightly higher than the Ksh 28.7 billion sent in January 2024 (equivalent to $221 million).
On average, remittances from the US stand at Ksh 26 billion ($200 million) per month, with annual totals surpassing Ksh 300 billion.
In 2024, the total remittance figure from the US reached Ksh 341.7 billion.
Also Read: Global Oil Prices Continue to Rise as Kenyan Shilling Remains Stable
National Treasury Principal Secretary, Dr. Chris Kiptoo, stated in February that if the apex bank had not been active in the market buying dollars, the Kenyan shilling could be exchanging at around 100 units to the dollar, as opposed to the current 129.
“The shilling gas appreciated from a low of Ksh 160 to now Ksh 129 per US dollar. That has been good stability for the last one year,” said Kiptoo.
“The Central Bank has been buying dollars over the same period, you can imagine if it was not going to the market to buy. The shilling would have been stronger, perhaps trading at Ksh 100 per dollar.”
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