Kenya Shilling is Overvalued by 30pct, Its Actual Value is Ksh130 To the USD – Amana Capital

Photographer: Luis Tato/Bloomberg

We concur with the IMF that the shilling is a managed currency – Amana Capital

Kenya has been operating a managed shilling than a free float currency, running a risk of making its exports more expensive in the short run as compared to competitors, eventually causing a reduction in export earnings and the economy’s growth, a report by Amana Capital has established.

Amana Capital chief investment officer Reginald Kadzutu said the shilling is overvalued by 30%.

He explained that the consumer price index which was at KSh97 in 2009 has since risen to KSh192, meaning that Kenyans are spending KSh192 to buy what could be bought at Sh100 ten years ago, translating to 5% devaluation of purchasing power.

”The shilling’s exchange rate which was at 72 against the dollar in 2009 is now at KSh100. This represents 20% devaluation, meaning the shilling is overvalued by %, ” Kadzutu said.

Amana’s “Kenya’s Economic Puzzle – Putting the pieces together” report highlighted that 10 years ago, the Consumer Price Index (CPI) stood at 97 but has since shot up to 192 to date meaning that the value KSh100 could buy in January 2009 can only buy 50% of that now. This translates into a 50% devaluation of the purchasing power.

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In 2018, the International Monetary Fund (IMF) review on Kenya’s economic health report, said the shilling risked being classified as “managed” rather than operating on the forces of demand and supply.

However, the CBK maintained that according to its calculations the Kenya shilling reflects the currency’s true, fundamental value.