Nairobi — Investment firm Cytonn has projected a slight depreciation of the Kenyan shilling, forecasting it to trade between Sh120.9 and Sh140.5 against the US dollar by the end of the year.

This represents an anticipated devaluation of about 4.6 percent, driven primarily by Kenya's persistent current account deficit, with the country remaining a net importer.

"We expect the depreciation to be primarily driven by Kenya's persistent current account deficit, as the country remains a net importer, which will increase demand for dollars and strain the local currency," the report stated in part.

As demand for US dollars rises, the local currency is expected to come under further pressure. Cytonn also noted that Kenya's high debt servicing costs, especially on US dollar-denominated debt, continue to strain foreign exchange reserves.

As of June 2024, 67.2 percent of Kenya's external debt was denominated in US dollars, exacerbating pressure on the shilling as more foreign currency is required to meet debt obligations.

Additionally, the firm highlighted a cautious outlook for local interest rates. A continued easing of the Central Bank Rate (CBR) could make local-currency assets less attractive to investors, increasing demand for foreign currencies and adding further downward pressure on the shilling.

Cytonn's 2025 forecast paints a challenging picture for the Kenyan currency, citing structural deficits, high debt servicing, and lower local interest rates as key factors contributing to a subdued economic outlook.