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Kenya’s shilling weakens for a second year



Kenya’s shilling has depreciated 3.5% to dollar this year after a seven-month losing streak, adding to a 7.8% loss last year.
The currency of East Africa’s largest economy reached its weakest closing level of 113.09 per dollar and was trading little changed in Nairobi. The biggest monthly decline was in August when it weakened 1.3%, while July-September was the worst quarter after depreciating 2.4%, according to data compiled by Bloomberg.
“We expect the local currency to remain under pressure due to the continued gains by the US dollar against other global currencies, elevated global oil prices supported by reduced supply from Opec members and reduced dollar inflow from key export earning sectors such as agriculture and tourism,” according to AIB-Axys Africa Capital.
“During the pandemic, the exchange rate acted as a shock absorber, reversing the previous trend of real effective exchange rate appreciation,” the International Monetary Fund said in a report.
. “This has helped absorb some of the impact of the Covid-19 shock, which reduced sources of foreign exchange for Kenya.”
While inflation expectations are well-anchored and there is adequate foreign-exchange reserve coverage, an analysis of Kenya’s debt sustainability suggests that the nation is susceptible to export and exchange rate depreciation shocks, according to the Washington-based lender.

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