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Mid-last year 2015, when the Kenyan shilling started its free fall to US dollar, many thought that the decline would be reversed in a matter of a month if not days.

However it has been over 3 months since the shilling registered its current low of 102 plus some pips against the greenback. This seems to be the new standard exchange rate between the shilling and dollar. Before the current rate, the slide of the shilling had touched the lows only seen in 2007 of 106 before Central Bank moving in to restore the coin.

The comfort has been on the fact that the dollar strength dominance being wide spread. The dollar’s appreciation against almost all other global currencies has in its wake left most economies at a loss as to what to do. To avert the pressure some countries have opted to dollarisation of their economies to control the volatility of their respective currencies. Dollarisation refers to a situation where an economy accepts the US dollar as a legal tender for trade in the normal exchange for fear of loss of value from their own currency.

After months of raising lending rates in 2015, the exchange rate seemed to get away without response to CBK's interventions, forcing the regulator to adjust it's rates monthly to reach as high of 11.5% from 8.5% prevailing before the spiral. This forced interventions through open market operations (OMO) by releasing more dollars into the market to meet the ever increasing demand for the currency fanned by local companies settling external obligations.

In its weekly bulletin for dated 8th January 2016, the Central Bank report that the Kenya Shilling exchange rate had portrayed mixed results against international and EAC currencies during the week ending January 7, 2016. It strengthened by 1.0 percent and 1.2 percent against the Pound Sterling and the Euro, respectively. It weakened by 0.8 percent against the Japanese Yen and stabilised against the US Dollar. In the EAC region, it strengthened against the Uganda Shilling and Tanzania Shillings and the Burundi franc but weakened against the Rwanda Franc.

The volatility of shilling is not new to Kenya. In 2007, the shilling reached a historical low of 107 against dollar following political unrest and economic crisis of 2008. Kenya is a net importer in the international trade market, this means we demand more dollars In order to settle our net obligations. This matrix has greatly complicated management of the currency's value.

Last modified on Monday, 14 March 2016
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