Kenya’s Shilling Faces Gradual Decline Amid Global Pressures, But Resilience Remains

Kenya’s shilling is expected to depreciate modestly to Sh132 against the U.S. dollar by December 2025, before slipping further to Sh135 by the end of 2026, according to a new projection by FocusEconomics. While a weakening trend is evident, the outlook reflects a more stable path than earlier forecasts, highlighting the shilling’s resilience in a challenging economic environment.

The depreciation is being driven by narrowing interest rate differentials, as the Central Bank of Kenya (CBK) recently cut its policy rate to 9.75%, while the U.S. Federal Reserve maintains higher rates. This has tilted investor preference back toward dollar assets, exerting downward pressure on the local currency. Political uncertainty and a widening fiscal deficit, now at 4.8% of GDP, are further dampening confidence.

However, analysts emphasize that Kenya’s currency is not in freefall. The CBK’s proactive “crawling-peg” strategy has enabled a controlled adjustment, allowing the shilling to weaken gradually without market disruption. Additionally, strong diaspora remittances, robust foreign appetite for domestic bonds, and steady central bank interventions have collectively cushioned the impact.

Moody’s has noted that without the CBK’s ongoing dollar purchases, the shilling may have even appreciated, suggesting underlying demand for the currency remains firm.

Rather than a currency in crisis, experts view the shilling’s outlook as a reflection of global monetary shifts and domestic fiscal challenges. For now, most analysts agree: Kenya’s currency will likely drift, steadily and measurably rather than tumble in disorder.