The Kenyan shilling is facing geopolitical tensions in the Middle East trigger a global flight to safety, with investors increasingly shifting their assets into the U.S. dollar.
The ongoing conflict involving the United States, Israel, and Iran has since rattled global financial markets, pushing the dollar to multi-month highs and weakening emerging market currencies such as Kenya’s.
According to data from the Central Bank of Kenya, the shilling traded at Ksh129.72 against the dollar on Thursday, a slight drop from Ksh129.30 recorded earlier in March.
Economist and analysts now warn that the local currency could depreciate further, potentially reaching between Ksh139 and Ksh168 by the end of the year if the crisis persists or escalates.
“It doesn’t look like the conflict will end anytime soon,” said Carol Kong, a currency strategist at the Commonwealth Bank of Australia. “The dollar is king while this conflict lasts.”
This trend reflects what economists describe as a “flight to safety,” where global investors move capital away from riskier emerging markets into stable assets such as the U.S. dollar and government securities. While this strengthens the dollar, it places significant downward pressure on currencies like the Kenyan shilling.
The Institute of Economic Affairs (IEA) has cautioned that a prolonged conflict could trigger sharp depreciation, warning that the shilling could fall by as much as 30 percent. Such a scenario would have far-reaching implications for Kenya’s economy, particularly due to its heavy reliance on imports.
For ordinary Kenyans, the impact is likely to be immediate and severe. A weaker shilling increases the cost of importing essential commodities such as fuel, food, and industrial raw materials. These costs are often passed on to consumers, leading to higher prices for basic goods and services.
Economists warn that this could reignite “imported inflation,” worsening the already high cost of living. Fuel prices, in particular, are expected to rise due to increased global oil prices and disruptions in supply chains.
The situation has been compounded by reports of fuel shortages in parts of the country, following disruptions linked to the closure of key global shipping routes such as the Strait of Hormuz. Oil marketers have already called on the government to review current pump prices, arguing that they no longer reflect market realities.
Beyond domestic pressures, Kenya’s external sector is also feeling the strain. The country’s exporters, particularly those trading with Middle Eastern markets, are reporting losses estimated at Ksh1.2 billion per week due to disrupted trade flows.
At the same time, Kenya’s external debt obligations – most of which are denominated in U.S. dollars are becoming more expensive to service as the shilling weakens. Analysts warn that a significant depreciation could widen the fiscal deficit and limit the government’s ability to stabilize the economy.
President William Ruto has called for a diplomatic resolution to the conflict, emphasizing the need to shield the economy from external shocks. However, experts caution that the effects of the crisis could be long-lasting, even if hostilities subside.
With the Central Bank of Kenya’s Monetary Policy Committee meeting scheduled for April 9, attention is now turning to potential interventions to stabilize the currency.
