The spread between the shilling’s official printed exchange rate against the dollar and the price at which buyers are accessing the hard currency in banks has widened over the past year.
Lenders have been pointing at inefficiencies in the market as a major reason for their struggles to fill large forex orders, despite the sector holding a record amount in dollar deposits.
On Thursday, the Central Bank of Kenya’s official shilling exchange rate against the dollar was an average of 127.29 units, well below the average of 132.50 being quoted by several large banks for retail buyers.
The spread between buying and selling prices for the dollar in banking halls is even wider, where the lenders are quoting in the range of 137.50 to 138.50 for retail buyers while buying the same at between 125.20 and 127.30 units. For the official rate, the spread between the buying and selling rate remains 20 cents.
The exchange rate has, however, been a sensitive issue, with most players preferring silence for fear of reprisals from the central bank.
“The interbank market, which as the wholesale platform for forex trading should be determining the pricing, has become inefficient. This uneven distribution has created a sense of shortage that brings hoarding and a willingness by buyers to pay a premium to access dollars,” a forex trader told the Business Daily.
The widening of the bid-ask spread — the difference between the price a dealer buys and sells a currency — in the foreign currency to a margin of more than Sh10 is also indicative of the high demand for dollars amid a perceived drop in supply, according to bankers.
The scramble for the dollar means that buyers keep bidding higher for the currency, both for trading and hedging purposes.
Lenders, the dealer added, are afraid of being left short of dollars and having to pay a premium for replenishments if they sell to their peers.
The higher effective rate for those buying dollars in the market has been highlighted for months by importers.
Access to the greenback has also proved difficult for some due to banks being unwilling to sell to each other, which makes it hard for smaller players to fulfil their orders from clients.
The regulator has on several occasions dismissed the possibility of a parallel exchange rate developing in the country, saying the market has enough dollars to meet demand from importers and corporates.
However, traders say that the daily movement in depreciation as per the CBK’s official rate has been widening in recent days, helping close the gap between the official and the retail average rates in banks.
In the past one month, for instance, the daily average movement of the exchange rate has been around 15 cents, compared to movements of five cents per day the previous month.
