NAIROBI, Kenya — The Kenyan shilling is facing renewed pressure, with global financial institutions warning it could weaken to as low as Sh135 against the U.S. dollar if elevated oil prices persist.
Analysts at Citigroup and Société Générale say the currency is at a critical point, citing rising global oil prices as a key risk factor for Kenya’s external stability.
Kenya imports nearly all its petroleum needs, meaning spikes in global oil prices directly increase demand for foreign currency, putting strain on reserves and widening the current account deficit.
Speaking to Bloomberg, David Cowan, Chief Africa Economist at Citigroup, warned that if oil prices rise above $100 per barrel and remain elevated, the shilling could depreciate sharply within the year.
“If oil moves back above $100 and stays there, the currency could slide to 135 shillings this year,” Cowan said, noting that such levels were last seen about two years ago.
The shilling is currently trading at around Sh129.11 to the dollar, according to the Central Bank of Kenya (CBK), after briefly strengthening below the Sh130 mark earlier this month.
Another UK-based bank has projected a more moderate depreciation to Sh132 by year-end, suggesting that the CBK may allow gradual weakening rather than aggressively defending the currency through reserve interventions.
However, CBK Governor Kamau Thugge has pushed back against the pessimistic outlook, maintaining that the shilling remains stable and supported by strong external buffers.
Thugge cited a balance of payments surplus of $619 million (about Sh80 billion) and adequate foreign exchange reserves as evidence of resilience, even under conservative projections that factor in slower export growth, reduced remittances, and softer tourism earnings.
“We were waiting for this kind of shock,” Thugge said, adding that the country had deliberately built reserves to cushion against global volatility.
The pressure on the shilling is partly linked to geopolitical tensions in the Middle East, which have disrupted oil markets and affected key inflows such as remittances from Gulf countries. Approximately 10 P.c of Kenya’s remittance inflows originate from the region.
At the same time, the country’s current account deficit is projected to widen to 3pc of GDP this year, up from 2.2pc, driven largely by increased fuel import costs.
Key export sectors, including tea and horticulture, are also facing headwinds due to supply chain disruptions linked to the ongoing conflict, further tightening foreign exchange inflows.
Despite the risks, some analysts see room for adjustment rather than crisis. Gergely Urmossy, Senior Frontier-Markets Strategist at Société Générale, noted that exchange rate movements are likely to dominate economic discussions in the coming months.
“I do think that shilling valuations and a foreign exchange adjustment will be a hot topic in the second half of this year,” he said.
As global oil markets remain volatile, the trajectory of the shilling will depend largely on external price shocks and the Central Bank’s balancing act between preserving reserves and maintaining currency stability.
