currencies
The Kenyan shilling hits an all-time low against the dollar
Tuesday 02 May 2023
US dollars, Kenyan currency and electronic currency display board at Bay Forex Bureau along Kenyatta Street. file image | Diana Ngella | NMG
The Kenyan shilling hit a new record low of 136.02 against the dollar, leaving the country facing expensive imports and a debt service crisis.
Data from the Central Bank of Kenya (CBK) shows that the local currency fell from an average of 135.9 on Monday evening to the new rate on Tuesday despite a forex code introduced by the main bank and a government deal to import oil on credit from the Gulf. States.
The shilling has been sluggish since mid-2021 when it settled at 106.54 as a result of a combination of weak inflows and strong dollar demand.
In the 12 months to December last year, the shilling lost 9 percent, sending the cost of living skyrocketing and hurting families who were already suffering from soaring food and fuel prices.
The situation was made worse by the sharp rise in US interest rates as part of efforts to curb inflation, which led to a persistent shortage of dollars in the local market.
In mid-January, ICEA Lion Asset Management analysts expected the shilling to face more downward pressure in the first half of the year, but it could fare better in the second half as the US dollar gives up some of the big gains seen in 2022.
A volatile shilling means that importers will spend more in bringing goods as raw materials to factories thus raising the cost of inputs for firms who in turn pass on the extra expenditure to consumers.
Kenya’s main imports include petroleum products, machinery and medicines, vegetable oils, pharmaceuticals, motor vehicles, wheat, and clothing.
The depreciation of the shilling is also set to lead to an increase in electricity prices through an increase in foreign currency fees on electricity bills, reflecting the impact of the dollar’s appreciation on household budgets.
On the government front, a weaker shilling portends more problems with foreign debt repayment obligations.
Foreign interest payments in the eight months to February, for example, jumped by Sh19.3 billion as a weak shilling underscores the devastating impact on debt servicing.
However, exporters of agricultural products such as tea, coffee and gardening, who are paid largely in dollars, are set to benefit from a weaker Kenyan currency as they will end up earning more.
Kenyans who receive money from relatives abroad also calculate foreign exchange earnings on the dollars they exchange for shillings before spending domestically.
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