Time flies with great content! Renew in to keep enjoying all our premium content.
Prime
Shilling hits Sh130 amid rising demand for dollars
The shilling’s prolonged peg at the 129 level was largely driven by a fairly balanced market in terms of supply and demand of hard currencies, aided by open market operations by the CBK that included dollar purchases and mop-ups of shilling liquidity to maintain the equilibrium.
The shilling’s average exchange rate against the dollar has touched the 130 level for the first time since August 2024, on the back of a gradual depreciation since the start of the Iran war at the end of February.
In the spot interbank market on Wednesday afternoon, the dollar traded at Sh130.0 per unit, having weakened slightly from Sh129.93 at close of trading on Tuesday.
This is the first time the shilling has strayed above the 129 level in 20 months, a period which marked one of the longest runs at a single exchange level for the local unit. The dollar was trading at Sh129.02 before February 28, when the war pitting America and Israel against Iran started.
Traders said that while the shilling has not experienced volatility during the month-long Iran war that has sent markets into turmoil, it has been pressured by an increase in demand for dollars by importers who have been hedging against possible increases in prices of overseas supplies.
To ward off volatility, they said that the Central Bank of Kenya (CBK) has made dollars available to the market, from its pool of reserves that now stand at a near-record high of $14 billion (Sh1.82 trillion).
“Some of the buyers have added to their dollar holdings, in case the shilling weakens in the event the Middle East does not end soon,” said a trader in a commercial bank.
“However, they have not been aggressive in the purchases, showing some comfort in the ability of the market to meet their obligations.”
The shilling’s prolonged peg at the 129 level was largely driven by a fairly balanced market in terms of supply and demand of hard currencies, aided by open market operations by the CBK that included dollar purchases and mop-ups of shilling liquidity to maintain the equilibrium.
However, the Iran conflict has threatened the stability of the shilling after the dollar gained in strength globally due to its status as a safe haven asset in times of global shocks and uncertainty.
In the Kenyan context, higher oil prices have presented the most immediate risk for the currency, given that fuel is Kenya’s largest import item.
There is also the secondary effect of higher fuel prices on the cost of other imported goods (due to the transport cost factor), which would effectively widen Kenya’s current account deficit and put pressure on the exchange rate.
Kenya sources its fuel from suppliers in Saudi Arabia and the United Arab Emirates (UAE) under the government-to-government deal signed in 2023.
The two countries have seen their Gulf ports effectively blocked by an Iranian blockade of the key Strait of Hormuz for shipping by countries it deems to be friendly to the US and Israel.
The fuel shipments from the two Gulf States have thus fallen below the usual volumes, forcing Kenya to source some consignments from alternative, more expensive sources, which comes with additional forex outflows.
Besides fuel, the conflict also poses a risk to the portion of Kenya’s diaspora remittances that come from the Middle East, which have risen in recent years thanks to a growing number of Kenyans taking up jobs in countries such as Saudi Arabia and the UAE.
In the 12-months to February 2026, Kenyans in the Gulf countries of Saudi Arabia, the UAE, Qatar, Bahrain, Oman and Iraq sent home a combined $491.76 million (Sh63.9 billion) in remittances, which accounted for 9.7 percent of the country’s total inflows of $5.051 billion (Sh656 billion) in the period.
Remittances are Kenya’s largest source of foreign exchange, helping keep the shilling stable by supplying the market with dollars to counter import and debt service related outflows.
