The shilling has weakened to a record low against the dollar, pressured by higher demand for the US currency by importers of petroleum products and other items such as industrial supplies.
The Kenyan currency hovered towards 115 units to the globally bullish dollar on Friday on the back of a fast-rising import bill that has outstripped earnings from exports, diaspora remittances and tourist receipts.
“There’s a widening [supply-demand] mismatch which is causing weakness as the demand side for the greenback which is rising faster than supply,” a forex trader at a tier-one bank said.
“Demand is generally coming from importers, but it’s difficult to say which sector (is driving it), although you would expect much of that demand to be from oil companies due to uncertainty in global oil prices.”
A depreciating shilling means importers spend more on bringing in goods such as petroleum products and raw materials for factories, raising input costs for firms that usually pass much of the additional expenses to consumers.
Exporters of tea, horticulture and coffee who are largely paid in dollars, however, benefit from a weakening Kenyan currency as they end up earning more.
Latest official data shows imports rose 20.87 percent year-on-year to Sh194 billion in January compared with an 11.21 percent rise in exports to Sh60.41 billion.
The shilling has depreciated 1.47 percent since the beginning of the year, but analysts expect worse in coming months due to expenditure on materials for August poll and runaway oil prices.
“Looking ahead, the currency is set to continue losing ground against the USD on the back of election-related uncertainty, a wide current account deficit and eroded foreign exchange reserves,” analysts at Barcelona-based FocusEconomics wrote in a report last Tuesday.