Shilling touches new low of 99.22

The shilling on Wednesday neared the psychological Sh100 mark to the dollar after touching a new low against the US currency in what is set to increase the cost of imported goods.

The Central Bank of Kenya (CBK) quoted the shilling at 99.22 to the dollar – a new low since October 2011. The local unit closed at 98. 63 in Tuesday’s trading.

The CBK has sold dollars worth billions of shillings in recent months and on June 8 raised its benchmark lending rate from 8.5 to 10 per cent to support the currency, a pointer that the shilling has defied the interventions.

The local currency had strengthened to Sh97 on June 9 after the bigger than expected rate rise.

“At around this level we are expecting the central bank to come in, so at about 99.30 people are booking profits,” a trader with a commercial bank was quoted by Reuters.

The central bank’s Monetary Policy Committee (MPC) is set to meet on Tuesday July 7, a month after it called for an early meeting on June 9 in what was seen as part of efforts to prop up the shilling that had set fresh three and a half year lows against the dollar.

Tuesday’s MPC meeting — normally held after every two months — will be the first for the new CBK governor Patrick Njoroge.

Dr Njoroge, whose appointment date was set at June 19, has pledged a rigorous approach to policy-making, saying he will rely on data for decisions and will avoid “knee-jerk ideology”.

The shilling has been under pressure since the beginning of the year due to falling revenues from tourism, tea and horticulture – key foreign exchange earners – amid concerns over the rising import bill.

READ: Import costs set to rise as shilling hits new three-year low

The weakening local unit has raised prospects of higher living costs in a country that largely depends on imports for its consumer and capital goods, especially fuel and industrial raw materials.

Tourism, once the highest foreign exchange earner, has borne the brunt of terror attacks as foreign tourist arrivals over the past year fell, leading to the closure of more than 40 hotels at the Coast.

Visitor numbers fell to 284,313 between January and May from 381,278 in a similar period last year, a 25.4 per cent drop.

Effects of the strengthening dollar have already been felt by motorists after the energy regulator this month raised fuel prices to the highest level this year.

The Energy Regulatory Commission also increased the forex adjustment levy in electricity bills to the highest level since December 2013, reflecting the impact of the weakening shilling on household budgets.

Reduced dollar inflows from underperforming key sectors against a rising import bill negatively impact the country’s balance of trade.

Official data shows that Kenya’s current account deficit widened to Sh1.08 trillion last year from Sh911 billion in 2013.

The expensive imported commodities are expected to push up inflation, which rose last month to 7.03 per cent from 6.87 per cent in May.