Kenyans reduced foreign currency deposits in commercial banks by Sh210 billion between January and July as the shilling appreciated by more than 20% against the dollar and other major world currencies.
According to the latest data from the Central Bank of Kenya (CBK), foreign currency deposits held by locals in banks fell by 13% to Sh1.39 trillion from Sh1.6 trillion at the beginning of the year.
Over the same period, the Kenyan shilling has appreciated by at least 20%, from an exchange rate of 161 shillings to the dollar in January to 128 shillings to the dollar in July, indicating a decline in demand for foreign currency.
The exchange rate in January hit an all-time high for the shilling, driven by high domestic and global inflation, high interest rates and a strong dollar that caused a mass exodus of foreign investors.
Following last year’s depreciation of the shilling, Kenyans continued to increase their dollar deposits with banks, reaching a record 1.6 trillion shillings in January, when the shilling was at its worst level on record.
Last year, the shilling depreciated by more than 31%, prompting Kenyans to hedge their savings with more stable foreign currencies such as the US dollar. Throughout the year, foreign currency deposits increased from just Sh946 billion in January to more than Sh1.5 trillion at the end of the year.
This year’s rebound in the shilling and subsequent appreciation has led domestic companies to cut back on foreign currency loans, which were on a positive trajectory last year.
For example, in April and June this year, when the shilling began to appreciate against the dollar, the central bank reported cutting local dollar-denominated lending by 14% and 13%, respectively.
The appreciation of the shilling has also increased foreign investors’ confidence in Kenya.
In June, portfolio investments held by foreigners in the country increased by more than 121 per cent to Sh6.4 billion from -Sh32.6 billion last year, reflecting improved investor sentiment towards Kenya.
