Economy

Shilling crosses 115 against the dollar, signals costly debt

shilling

A trader counts coins at his kiosk in Nyeri. PHOTO | JOSEPH KANYI | NMG

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Summary

  • The shilling on Monday hit an all time low against the dollar, signalling higher cost of imported goods and inflation.
  • The continued weakening of the local currency is expected to push up living costs, hurting households already subjected to high fuel and food prices.
  • The new round of shilling loss to the dollar coincides with conflicts between Russia and Ukraine, rising global concerns of oil inflationary pressures.

The shilling on Monday hit an all time low against the dollar, signalling higher cost of imported goods and inflation.

Central Bank of Kenya (CBK) data shows the Kenya shilling exchanged at an average of 115 on Monday, setting up the country for more expensive imports, electricity and, debt servicing distress.

The continued weakening of the local currency is expected to push up living costs, hurting households already subjected to high fuel and food prices.

Kenya imports various goods including cars, petroleum, machinery, medicine and pharmaceuticals products, vegetable oil, wheat, clothing and shoes.

The new round of shilling loss to the dollar coincides with conflicts between Russia and Ukraine, rising global concerns of oil inflationary pressures. Russia is the third global producer of oil.

Petroleum prices have remained high due to the geopolitical risks, forcing the government to retain subsidies in a bid to ease the consumer burden.

The depreciating shilling threatens to pile fresh pressure on fuel prices, which has stoked public anger.

The shilling has been on the back foot in recent weeks on the combination of weak inflows and strong dollar demand across sectors, traders said.

There has been strong dollar demand from various sectors which has outstripped lackluster inflows, traders said.

The continued loss of the shilling against the dollar has seen the CBK intervene to cushion further loss.

Data shows the country’s foreign currency reserves held by CBK dropped to $7.85 billion (equivalent to 4.66 months of imports) as at March 31, 2022, from $7.84 billion as at 24 March 2022 (which was equivalent to 4.80 months of imports).

“The CBK foreign exchange reserves, which currently stand at $7,850 million (4.80 months of import cover), continue to provide adequate cover and a buffer against any short-term shocks in the foreign exchange market,” said Central Bank of Kenya (CBK) governor Patrick Njoroge following the Monetary Policy Committee meeting on March 29.

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