Rising demand by oil marketers and manufacturers have seen the shilling drop three per cent to trade at Sh102.20. FILE
Increased demand for dollars by oil marketers and manufacturers have seen the shilling drop three per cent to trade at Sh102.20 to the greenback in one of the steepest one-day falls, raising fears that the currency is yet to bottom out. (See related: CBK in a spotlight as shilling touches 100 mark to the dollar)
The local unit slide on the back of high corporate and dollar demand on the world market over fears of a global recession.
Demand from oil marketers and manufacturers weighed the shilling down 3.2 units from the opening price of Sh99.10 as the little inflows from tea failed to support the plummeting currency.
Dealers at the Kenya Commercial Bank quoted the currency at Sh102.20 at the close of trading Monday.
Those interviewed said the currency is suffering from both domestic and global demand for the dollar which has seen even regional currencies such as the Ugandan and Tanzanian shilling, and the South African rand lose substantially.
“Demand from manufacturers and oil marketers is heavy compared with mild inflows from tea exports,” said Robert Gatobu, a dealer at Bank of Africa.
The sliding currency continues to be a major cause for concern as it has resulted in high prices of imported goods leading to record inflation levels. The cost of living measured by inflation last month rose to stand at 16.67 per cent up from 15.53 the previous month.
This has seen traders in imports such as second hand cars lose market as consumers cut down their budgets for non-essential commodities.
But the flight to safety by global investors could result in lower commodity prices. This could subsequently help to slow down the effect of the depreciating shilling by dampening local dollar demand, as investors dump commodities to put their funds in the dollar.
The sliding shilling is putting breaks on various projects in the country while increasing the budgets of ongoing ones. “We are having to revise our budgets upwards as the shilling and oil prices change,” said the managing director of the Kenya National Highways Authorities Meshack Kidenda last week.
This means that the ongoing construction projects in the country could face much tougher conditions if the currency continues at the current rate and already City Hall is recording a decline in the number of building plans approved for construction this year.
This translates into higher international debt owed by the Kenya government and corporate Kenya to the outside lenders. The sliding currency has also suffered from heavy one-off purchases by individual companies, helping to accelerate the rate of depreciation.
The Central Bank has come under the spotlight for its apparent inability to cap the slide in the local currency with the CBK governor partly attributing the shilling’s woes to the deteriorating conditions in the global financial markets.
The sliding shilling could also reverse the affect of improving weather conditions that have brought about increased rainfall, improving the hope for cheaper agricultural goods as a number of important commodities such as wheat, maize, rice and sugar are being imported.
Even though the prices of industrial goods are dropping, international food costs remain significantly high even as some continue to rise.
