The Kenyan shilling shed 3.6 per cent against the US dollar last year and is expected to drop further this year pressured by global market volatilities.
However, the Central Bank of Kenya says the situation is not unique to Kenya as other currencies suffered a similar fate as the dollar strengthened by 6.37 per cent.
The shilling has been reporting new lows against the dollar since December, hitting a low of Sh114.36 mid this month before stabilising to current levels of 113.55.
Yesterday, CBK governor Patrick Njoroge downplayed the local currency's depreciation, saying that the happenings in the foreign exchange market are not out of norm.
''There are no concerns about shilling performance,'' Njoroge said during a virtual post Monitory Policy Committee (MPC) media briefing.
He attributed the depreciation to growth in export value, with the country reporting a 17 per cent jump in earnings in 11 months to November last year.
The value of domestic exports grew to Sh603.6 billion, the latest Kenya National Bureau of Statistics (KNBS) data shows, up from Sh512.3 billion in 2020.
Including re-exports, the total value was Sh672.6 billion compared to Sh583.7 billion buoyed by the reopening of economies and international trade.
While Kenya's currency lost value against the US dollar, East Africa's peers gained, with Ugandan and Tanzanian shilling being among only six currencies in Africa that reported growth.
Zambian Kwacha was the biggest gainer at 27 per cent followed by Angolan Kwanza at 17.1 per cent. Other is Mozambique's New Metical 16.6 percent and Guinean Franc 7.2 per cent.
Ugandan and Tanzania shillings gained 2.8 and 0.6 per cent respectively.
The Ethiopian Birr lost 21.6 per cent in value against the greenback followed by Sierra Leone's Leane at 10 percent and Botswana's Pula at 7.9 per cent.
International currencies like Euro and the UK's Staling Pound also depreciated against the dollar commanding almost 80 per cent of the international trade.
On Tuesday, the International Monetary Fund (IMF) warned of a rise in the cost of living globally, with exchange rate volatility cited as one of the key contributors to the expected inflation pressures on the global economy.
According to the global lender, the US Federal Reserve's move to raise the lending rate could rattle financial markets and trigger capital outflows and currency depreciation.
"The cost of living will be severe in the developing countries especially in Sub-Saharan Africa on poor agricultural yields, high import cost due to weak currency and supply chain disruptions due to emerging Covid-19 variants," IMF said.
It added that emerging markets with high public and private debt, foreign exchange exposures, and lower current-account balances had already seen larger movements of their currencies relative to the U.S. dollar.
According to the latest analysis of the Kenyan shilling by ForecasEconomics, accelerating inflation in the U.S. over the past few months and the Fed’s increasingly hawkish tone have raised expectations of a sooner-than-anticipated rate hike.
''The depreciating trend will continue in 2022, amplified by election-related uncertainty, which typically saps confidence, taking the shilling to Sh116.7 per by year-end,'' ForecasEconomics says.
It expects the pace of decline to moderate over the remainder of the forecast period, helped in part by monetary tightening, leading to an average exchange rate of Sh126.5 per US dollar by 2026.
In spite of global inflationary risks, the CBK expects the cost of living to remain in check domestically with the rate of inflation held down within the government target range of 2.5 to 7.5 per cent.
The regulator is attributing this to recent interventions including electricity tariff reductions and the operation of the fuel price stabilisation mechanism.
In Kenya, consumer prices rose to 0.91 per cent from the previous month in December, accelerating from November's 0.45 per cent rise.
December's figure was the highest reading in a year. The increase was largely driven by rising prices for food and non-alcoholic beverages. In addition, price pressures for housing, utilities and fuel increased at a faster rate.
Even so, inflation dropped to 5.7 per cent in December, edging down from November’s 5.8 per cent. Last month's reading represented the lowest inflation rate since September 2020.
