The Kenyan shilling weakened on Wednesday, July 10, against the United States dollar despite initial prediction by financial experts that the local currency would stabilise further.
The weakening of the Kenyan currency was mainly attributed to the recent downgrade by Moody’s, a global credit rating agency.
On Monday, July 8, Moody's pushed Kenya's sovereign rating deeper into junk territory, citing the country's inability to deal with its bulging debts.
The negative rating followed days after President William Ruto withdrew the contentious Finance Bill 2024 and instead resorted to budget cuts in a bid to narrow the fiscal deficit.
According to the credit rating agency, the withdrawal of the tax proposal could trigger numerous repercussions for the country, including delayed International Monetary Fund (IMF) disbursement.
The credit rating agency downgraded the country's credit ratings to "Caa1" from "B3" and projected Kenya's debt affordability to remain weaker for longer.
"Slower fiscal consolidation would risk constraining external funding options even more, including diminishing support from multilateral creditors," the credit rating agency revealed.
Moody's further disclosed the withdrawal of the Finance Bill would also negatively impact investor sentiment and consequently restrain Kenya from accessing alternative sources of external financing.
The local currency also weakened on Wednesday due to high demand for foreign currency, majorly by manufacturers and importers.
Importers and manufacturers who sought to make purchases for their industries on the international front were hit by a dollar shortage thus forcing them to seek the currency at higher rates.
However, the latest development contradicts an initial projection by experts who claimed the Kenyan currency would stabilise for the next seven days due to confidence by traders about the forex markets.
The protests which took place across the country over the recent weeks sparked jitters among both importers and manufacturers who acted on caution and rushed to purchase more foreign currency.
"I think we are past the bad stage, everybody has realized the worst protests are probably over. People see discussions likely taking place and that is bringing stability to the market," claimed an expert who spoke to Reuters.
"We had expected the shilling to trade on the back foot but it's been quite resurgent. Our eyes are still on the protests and expect cautious trading," noted another expert who also spoke to the same news outlet.
