Dollar holders reap big as Ksh slides
3 min read
Dollar holders record large gains on their hard currency stock as Ksh continues its depreciating trajectory
Dollar holders record large gains on their hard currency stock as Ksh continues its depreciating trajectory.
On account of the weakening shilling, the value of dollar deposits in commercial banks increased to a new record high of Sh1.185 trillion at the end of June, rewarding account holders with double-digit capital gains on their hard currency stock.
According to recent data from the Central Bank of Kenya (CBK), the value of these deposits increased by Sh93 billion in June alone, bringing the growth rate for the year to far to 28.7%, or Sh264 billion.
Analysts believe that the devaluation of the shilling versus hard currencies is the main cause of the increase in value, which is partially a result of an increase in the actual stock of dollars.
Since the beginning of the year, shilling has depreciated by 13.5 percent against the dollar, by 18.5 percent against the British pound, and by 16.1 percent versus the euro.
The shilling has mainly suffered from a stronger dollar as the US Federal Reserve hikes interest rates to fight inflation.
The rate hikes tend to spark dollar outflows to safe havens in the developed world, increasing demand for the greenback and depressing the value of the local currency.
“The deposits have been more or less stable, but because of the shilling weakness, there is a rise in their value in local currency terms. It is more of a valuation issue,” said Churchill Ogutu, an economist at IC Asset Managers (Mauritius).
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CBK data on actual dollar stockpiles—available for the first quarter of the year—shows a divergence in the rate of growth of the hard currency and its shilling value.
The sharper climb in value in June compared to the other months however shows that depositors are beginning to stockpile dollars, mainly as a hedge against possible future forex market shocks.
Corporates account for about 70 percent of Kenya’s dollar deposits, with the rest in the hands of households, indicating that the bulk is not held for speculative purposes.
Bulk buyers have recently sought a buffer of dollars following a shortage of the US currency in the first quarter of the year due to hitches in the interbank forex market that had become dormant in recent years.
Those hedgings are also covering against forex losses should they need to buy dollars down the road, taking into account the continued depreciation of the shilling.
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