@tom_boy, kuwa mpole bwana.

Currency exchange rates are determined by a number of factors e.g. interest rates, current account on balance of payments, economic growth, relative inflation rate etc. Now looking at interest rates in isolation: if Kenyan interest rates rise, it shall become more attractive to save in Kes, thus a demand for the currency thus appreciation, but the KES is not a major currency and no one will dare do what ive explained considering the fragile nature of third world countries where savings could be wiped out in a flash.

Now, answering your question based on the current situation: most emerging economies have borrowed in USD, i.e. both governments (read Eurobond in kenya, Nigeria, Ghana etc) and even the private sector. When the US raise their interest rates, investments and funds shall start trickling back at the expense of other countries, demand for the dollar shall rise and the USD shall appreciate and other currencies shall depreciate (KES etc).

These shall be the effects:

1) investment shall be withdrawn by foreigners, a capital outflow which shall affect key investments both in the private sector and public sector.

2) repayment of debt shall be more expensive since the govt source of revenue is kes and repayment of debt is in usd, thus it shall take more kes to buy the same dollar. Thus the govt shall borrow more, still in Kes to meet the obligation, this shall cause interest rates to rise and the debt burden to increase even further. (For Kenya this is dangerous considering our budget deficit stands at 9.3% of GDP). For the government to protect the KES it needs to by either buy more dollars or raising interest rates higher crowding out funding for the private sector.

Barclays has been begging to extend a loan to me,including a credit card loan at 1.15% per month. I also don't understand when people say there is a credit crunch . I'm actually restraining myself from taking unplanned loans

Obi wrote :

PS, a major bank last week came to our office to sell us loans including credit cards and mortgages so I don't get this credit crunch bit that everyone is harping about.

Let a businessman write his current situation with banks right now.. Personal banking has always been less risky. The SMEs are the real sufferers in this capping shit

Being in consultancy, I'm privy to smes doing very well with their banks. The thing is building relationships that can be trusted. Paying loans on time
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