Shilling fall against US dollar to fuel high prices

The prices of imported goods such as maize flour and fuel will be higher in the coming days as the shilling heads towards the 91 to the dollar mark, currency dealers said.

The shilling Monday sank lower against the dollar on increased dollar demand across various industries amid scanty dollar inflows with currency traders pointing to a weaker currency in the coming days.

The currency slid from 90.20 last Friday to trade at 90.45 on the back of high demand from oil marketers, millers, car importers and the manufacturing sector. “We are seeing demand across the board, the outlook is for a weak shilling,” said Duncan Kinuthia a senior dealer at Bank of Africa.

Panic buying

They said importers who were holding shillings hoping things will improve further have started buying in panic as it becomes clear that the shilling may yet again fall past the 91 mark.

They said dollar inflows from exporters are not enough to support the shilling and hence the market is biased towards a weaker local currency.

Crude oil prices for August delivery rose $4 dollars yesterday up from $112 last week meaning that oil prices will remain high adding to the already high inflation levels locally. Inflation currently stands at 14.49 up from 12.95 the previous month.

Dealers said high demand for maize is among the factors likely to pile more pressure on the currency making other importers pay more for their dollar requirements. The official foreign exchange reserves held by the Central bank dropped from 3.73 months worth of import cover to 3.65 months worth of import cover. The Central Bank stayed out of the market.

High inflation

The shilling equally lost against a basket of major world currencies such as the sterling pound, the Japanese. It lost Sh2 and Sh1 against the yen and dollar respectively to trade at 142 per sterling pound and 111 per Japanese yen while remaining unchanged on the euro.

Efforts by the CBK to tighten market liquidity by increasing lending rates have been met with high global commodity prices with strong local demand for imported goods suspending the CBK’s intention to forestall inflation. High inflation is expected to fuel demand for higher wages that began as households begin to feel the pain of a weak shilling and rising cost of transport.