Kenyan shilling hits a new all-time low against the dollar
What you need to know:
- A volatile shilling means importers will be spending more in bringing in goods as raw materials for factories thereby raising the cost of inputs for firms which in turn pass the additional expenses to consumers
The Kenyan shilling has hit a new record low of 136.02 against the dollar, setting up the country for more expensive imports and debt servicing distress.
The Central Bank of Kenya (CBK) data shows that the local currency slipped from an average of 135.9 on Monday evening to the new rate on Tuesday despite the forex code introduced by the apex bank and a government deal to import oil on credit from the Gulf States.
The shilling has been on the back foot since mid-2021 when it stood at 106.54 on the combination of weak inflows and strong dollar demand.
During the 12 months to December last year, the shilling lost 9 percent consequently pushing living costs to sky-highs and hurting households already subjected to high food and fuel prices.
The situation has further been worsened by the aggressive rise of US interest rates in efforts to curb inflation, which has given rise to a sustained shortage of the dollar in the local market.
In mid-January, ICEA Lion Asset Management analysts had projected that the shilling would face further downward pressure in the first half of the year but may fare better in the second half as the US dollar sheds some of the significant gains witnessed in 2022.
A volatile shilling means importers will be spending more in bringing in goods as raw materials for factories thereby raising the cost of inputs for firms which in turn pass the additional expenses to consumers.
Kenya's main imports include petroleum products, machinery, medicine, vegetable oil, pharmaceuticals, cars, wheat and clothing.
The depreciation of the shilling is also set to increase electricity prices through higher forex levies on power bills, further reflecting the impact of the strengthening dollar on household budgets.
On the government front, a weakened shilling portends more woes with regard to foreign debt repayment obligations.
Foreign interest payments in the eight months to February, for instance, jumped by a whooping Sh19.3 billion courtesy of a weakened shilling underscoring the devastating impact on debt servicing.
Exporters of agricultural products such as tea, coffee and horticulture who are largely paid in dollars are however set to benefit from the weakening of the Kenyan currency as they will end up earning more.
Kenyans receiving money from relatives abroad are also counting forex gains on the greenback which they exchange for shillings before spending locally.
