The Kenya shilling reached a new low against the US dollar depreciating by 0.2% to close the week at Kshs 122.0, from Kshs 121.8 recorded the previous week.
This is attributed to increased dollar demand from importers, especially oil and energy sectors, against a slower supply of hard currency.
Interbank money market
During the week, liquidity in the money markets tightened, with the average interbank rate increasing to 4.4% from 4.2% recorded the previous week, partly attributable to tax remittances offsetting government payments.
The average interbank volumes traded increased by 81.7% to Kshs 21.1 bn from Kshs 11.6 bn recorded the previous week.
The interbank money market is a market in which banks extend loans to one another for a specified term. Most interbank loans are for maturities of one week or less, the majority being overnight.
“The Kenya shilling depreciation streak has seen our current account deficit widen to 5.3% of gross domestic product (GDP), at a point in time where our forex reserves have fallen to historic lows. The rise in interest rates, especially in developed economies, has enticed a capital flight back into developed economies,” Analysts from Genghis Capital note in their Cross Asset Weekly Strategy dated November 21, 2022.