Kenyans cut their foreign currency-denominated deposits in commercial banks by Sh210 billion between January and July, as the shilling gained by over 20 per cent against the dollar and other world majors.
According to the latest data by the Central Bank of Kenya (CBK), foreign currency deposits held by locals in banks declined by 13 per cent to Sh1.39 trillion, down from Sh1.6 trillion at the beginning of the year.
Over the same period, the Kenyan shilling appreciated by at least 20 per cent, gaining from an exchange rate of Sh161 per dollar in January to Sh128 per dollar as of July, signalling a drop in demand for foreign currencies.
The exchange rate in January was the shilling’s all-time highest, coming on the back of high inflation locally and globally, high interest rates, and the appreciation of the dollar, which sparked mass exits for foreign investors.
With the slump of the shilling witnessed last year, Kenyans continued to grow their dollar deposits held in banks, hitting a record Sh1.6 trillion in January, when the shilling was at its worst-ever level in history.
Last year, the shilling depreciated by over 31 per cent, pushing Kenyans to hedge their savings using stabler foreign currencies such as the US dollar. Over the year, foreign currency deposits rose from just Sh946 billion in January to over Sh1.5 trillion at the end of the year.
With the rebound of the shilling and subsequent appreciation this year, local companies have also cut back on foreign currency-denominated loans, which were on a positive trajectory last year.
For example, in April and June this year, after the shilling started gaining against the dollar, the CBK reported that local cut back on dollar-denominated loans by 14 per cent and 13 per cent respectively.
The gaining shilling has also increased foreign investors’ confidence in Kenya.
In June, portfolio investments held by foreigners in the country rose by over 121 per cent to Sh6.4 billion from last year’s negative value of Sh32.6 billion, reflecting improving investor sentiment on Kenya.
