Effect of exchange rate fluctuations on the volume and value of Kenya’s horticultural exports

Resumo

The impact of monetary policy tools on horticultural exports in Kenya was investigated between 2014 and 2023. Despite being one of Kenya’s largest foreign currency earners, the competitiveness of horticulture is very sensitive to macroeconomic developments. In this study, the impact of the nominal exchange rate, central bank lending rate, broad money supply (M3), and inflation on the income earned from exports was assessed. Time-series data for each quarter was collected from the Central Bank of Kenya, Kenya National Bureau of Statistics, Horticultural Crops Directorate, World Bank, and International Monetary Fund. Initial data analysis was performed through descriptive statistics and correlation analysis. The econometric analysis was done by estimating the Autoregressive Distributed Lag (ARDL) and Vector Error Correction Models (VECM). The ARDL model was estimated after conducting unit root tests and cointegration test for the variables. The findings revealed that depreciation of the exchange rate boosted horticultural exports earnings in the short run and long run. In the short run, the Central Bank lending rate had a negative impact on horticultural exports. The findings indicates that whenever there is a 1 percent rise in the lending rate, there is a fall in the growth rate of horticultural exports by 1.3 percent, which implies about KES 400 – 450 million in revenue lost. There was no long-term influence of the lending rate. Broad money supply played a positive role in the short and long term. This validates the role of the liquidity factor. The conclusion of this study shows that monetary policy tools play an essential role in determining the performance of horticultural exports. It proposed some policies which include maintaining exchange rates to be competitive, credit at lower costs, controlled liquidity growth, and price stability. These measures would safeguard the competitiveness of Kenya’s horticultural exports and strengthen their contribution to economic growth.