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At 202.46 units, the shilling has shed a third of its value to the UK currency in one year, considering that it was averaging 150.09 in January 10 last year. FILE PHOTO | AFP
The official shilling exchange rate against the British pound has crossed the Sh200 mark, boosting the earnings of horticulture exporters to the UK and parts of Europe that trade using the currency.
Central Bank of Kenya (CBK) data showed a unit opened yesterday exchanging at an average of Sh202.46, a record point that continues the trend witnessed last year. It had opened the year exchanging at 199.80 to the pound.
At 202.46 units, the shilling has shed a third (33.1 percent) of its value to the UK currency in one year, considering that it was averaging 150.09 in January 10 last year.
Several Kenyan banks have, however, been selling the pound at highs of Sh218 for weeks. The pound, like the US dollar, has benefited from a flight of capital to Western markets on the back of aggressive interest rate hikes due to high inflation.
The Bank of England ended a run of 14 straight hikes in September last year, after lifting its benchmark rate from 0.1 percent to a 15-year high of 5.25 percent between December 2021 and August 2023. For a third consecutive meeting, it held the rate at 5.25 percent in December.
Kenya’s trade with Britain is mainly carried out using pounds, while in mainland Europe it is done using a mix of pounds and euros. The bulk of international trade is, however, in dollars, against which the shilling has also had a poor run, losing about 29 percent in a year.
The country sells agricultural produce such as cut flowers, vegetables, fruits, coffee, and tea to the UK while buying vehicles, machinery, and alcoholic beverages such as spirits, pharmaceuticals and electronics from the European country.
The stronger pound favours Kenya since the country holds a trade surplus with the UK. Exports to the UK dropped by 9.8 percent to Sh44.56 billion in 2022 and imports grew by 3.5 percent to Sh34.75 billion.
A weak shilling means companies exporting goods to the UK are fetching more when they convert the pounds into the local currency.
But it is bad news for Kenya in terms of servicing pound-denominated loans since it means increased costs of settling the borrowed amount. Among the currencies that hold most of Kenya’s external debts, the shilling has lost the most against the sterling pound in 12 months to January 10.
About 2.3 percent of Kenya’s external debt was denominated in pounds at the start of July last year. Dollar-denominated borrowings made up 67.2 percent of external debts while 21.3 percent, 3.9 percent and 5.1 percent was in Euro, Yen and Yuan respectively.
The shilling has lost 30.3 percent against the Euro in this period and 22.2 percent and 17.4 percent against the Chinese Yuan and Japanese Yen respectively.
