Why New Report Project Depreciation of Shilling Against US Dollar

Investment firm Cytonn has predicted a modest depreciation of the Kenyan shilling, estimating it will range between Sh120.9 and Sh140.5 against US Dollar by year-end.

This forecast reflects a projected decline of roughly 4.6 per cent, largely attributed to a persistent current account deficit, with Kenya remaining a net importer.

“The weakening of the shilling is expected to be primarily driven by the ongoing current account deficit, as Kenya continues to rely heavily on imports, which increases demand for dollars and puts strain on the local currency,” the report noted.

READ: What New Report Say About Kenya’s Economy

As the demand for US dollars rises, the pressure on the shilling is expected to intensify.
Cytonn also pointed out that Kenya’s elevated debt servicing costs, especially concerning US Dollar-denominated debt, are placing additional strain on the country’s foreign exchange reserves.

By June 2024, 67.2 per cent of Kenya’s external debt is in US dollars, amplifying pressure on the shilling as more foreign currency is needed to fulfill debt obligations.

Additionally, the firm cautioned about a cautious outlook for local interest rates.

Cytonn suggested that further reductions in the Central Bank Rate (CBR) could make investments in local-currency assets less attractive to investors, thereby increasing demand for foreign currencies and exerting more downward pressure on the shilling.

Cytonn’s 2025 projections indicate a challenging period for Kenya’s currency, with structural deficits, high debt servicing, and lower interest rates all contributing to a subdued economic outlook.