The depreciation comes despite the the Central Bank of Kenya (CBK) raising interest rates in December to counter weakness in the local currency.
Last month, the CBK surprised the market as it unexpectedly raised interest rates by 200 basis points/ two percent, lifting the Central Bank Rate to 12.5 percent from 10.5 percent. In its decision, the CBK Monetary Policy Committee-MPC noted that the exchange rate depreciation had continued to exert pressure on domestic prices.
According to CBK Governor Dr Kamau Thugge, the shilling had overshot its desired level of depreciation following interventions to reset the foreign exchange market after what the apex bank alleged to have been the overvaluation of the local currency.
“We thought the shilling had been overvalued for quite some time, there has since been significant adjustments and we now feel that the shilling has depreciated enough and actually may have overshot the rate required for equilibrium,” Dr Thugge said on December 6.
Source: Business Daily