Kenya's shilling is expected to weaken after an extended stretch of stability, with rising dollar demand from oil marketers and general importers weighing on the currency, CNBC Africa reported on Thursday. Commercial banks in Nairobi quoted the shilling at 129.75/95 per dollar, the same level as a week earlier. In Uganda, traders expect the shilling to resume its slide even after the Bank of Uganda's emergency interest rate increase this week, with weaker export earnings and elevated energy costs cited as persistent drags.
The Bank of Uganda raised its central bank rate by 2.25 percentage points, bringing it to 12.0%, according to SoftPower News and ChimpReports. The move gave the shilling an immediate boost on Wednesday, but traders told CNBC Africa that the underlying fundamentals point to further depreciation. "I would think the shilling will continue weakening driven by the same fundamentals, but possibly the depreciation will be at a much slower pace," one trader said. Commercial banks quoted the Ugandan shilling at 3,990/4,000 to the dollar, compared with the previous Thursday's close of 4,080/4,090.
Why it matters
The pressure on Kenya's and Uganda's currencies reflects broader strains across East Africa's foreign-exchange markets, where importers' dollar needs and soft export receipts are testing central banks' ability to defend their currencies. Uganda's rate hike — one of its most aggressive in recent memory — underscores the urgency policymakers feel as the shilling's slide threatens imported inflation and debt servicing costs. For Kenya, the shilling's renewed weakness after a period of calm could complicate efforts to manage fuel prices and external obligations. The two economies are among the region's largest, and their currency trajectories often set the tone for neighboring markets.
The rate increase in Uganda drew criticism from some economists, according to the Daily Monitor, which reported that analysts faulted the central bank's action for making money more expensive. The concern is that higher borrowing costs could dampen business activity and slow economic growth, even as the central bank tries to stabilize the currency. The tension between fighting currency depreciation and supporting domestic economic activity is a familiar dilemma for policymakers across the region.
Uganda's rate hike and the limits of intervention
Uganda's 2.25-percentage-point increase was described by Business Insider Africa as a move that briefly made the shilling the top performer among global currency markets. That headline gain, however, may prove short-lived. Traders cited by CNBC Africa pointed to weak export receipts and high energy prices as factors that will continue to weigh on the currency. The rate hike raises the cost of borrowing in shillings, which can attract foreign investors seeking higher yields, but it does not address the structural imbalance between Uganda's export earnings and its import bill.
The shilling's movement from 4,080/4,090 to 3,990/4,000 against the dollar in a single week illustrates how quickly sentiment can shift in thin foreign-exchange markets. Whether the central bank can sustain that improvement without further tightening — or without measures to boost export revenue — remains an open question. The economists' criticism reported by the Daily Monitor suggests that the debate over the right policy mix is far from settled.
Kenya's stability gives way
Kenya's shilling had been relatively stable in recent weeks, but CNBC Africa reported that increased dollar demand from oil marketers and other importers is now eroding that calm. Inflows from charitable organizations could provide some offset, limiting the scale of losses, though the report did not specify the magnitude of those inflows. The shilling's unchanged quote of 129.75/95 per dollar from a week earlier suggests the pressure has not yet translated into a sharp move, but the direction of travel is clear.
Kenya's economy relies heavily on imported petroleum products, and a weaker shilling raises the local-currency cost of those imports. That dynamic can feed into pump prices and, eventually, broader consumer inflation. The central bank has not announced any new measures in response to the latest pressure, and it is unclear whether it will intervene directly in the market or rely on other tools.
A mixed picture across African currencies
The strain on Kenya's and Uganda's currencies stands in contrast to the outlook for several other African units covered in the same CNBC Africa report. Ghana's cedi is expected to extend this week's gains, supported by strong foreign-exchange inflows from the mining sector and improving liquidity in the interbank market. "The cedi is likely to extend its rally against the dollar in the coming week, as strong mining-sector FX inflows outweigh demand from local corporate accounts," said Andrews Akoto, head of trading at Absa Bank Ghana.
Zambia's kwacha is expected to hold steady, with companies selling hard currency to raise local funds for month-end obligations. Commercial banks were selling one dollar at 20.18 kwacha on Thursday, compared with 20.23 a week earlier. "Despite persistent pressure arising from (foreign-currency) demand from importers, corporates will also be selling dollars to pay salaries and other month-end dues," a financial analyst said.
Nigeria's naira may trade in a narrow range, supported by dollar sales from the Central Bank of Nigeria and foreign inflows. The currency was quoted at 1,329 to the dollar on the official market on Thursday, little changed from 1,331 a week earlier, while street trading put it at around 1,375. "We expect to see a broadly stable naira in the coming week, largely due to the Central Bank of Nigeria dollar sales," a trader said.
The divergence between these markets highlights how local factors — mining inflows in Ghana, corporate tax and salary cycles in Zambia, central bank intervention in Nigeria — shape currency outcomes more than any single regional trend. For Kenya and Uganda, the near-term path depends on whether import demand cools, export earnings recover, or central banks take further action.
What to watch
Traders and analysts will be watching whether Uganda's rate hike produces a lasting stabilization or merely a temporary pause, and whether Kenya's shilling breaks out of its recent range as dollar demand from oil marketers persists. The next moves by both central banks — and any signals about further tightening or intervention — will be the key indicators in the coming weeks.
