Currencies

Shilling falls to all time low on rise in dollar demand

currency

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

timothy odinga

Summary

  • The local currency, which has been on a consistent decline since the month started, has now seen its value shed by five percent since May when it had risen at 106.5.
  • Forex reserves which play a key role in stabilizing the shilling and paying off external debt have been eroded by Sh41.2 billion.
  • The Central Bank, however, remained optimistic stating that the reserves remain adequate and meet the statutory requirement of at least 4 months of import cover.

The shilling on Wednesday slumped to an all-time low exchanging at 111.7 units against the dollar on increased dollar demands by importers and corporates.

Reduced dollar inflows from key exports such as tea and horticulture combined with high demand for hard currencies for machinery, oil and capital equipment imports have continuously piled pressure on the local currency in the fourth quarter.

“Supply for the dollar has been low but demand from corporates paying dividends and in need for dollars for other transactions has been high as a result the shilling has struggled,” Ken Minjire a senior associate for debt and equity at AIB-AXYS told the Business Daily in an interview.

The local currency, which has been on a consistent decline since the month started, has now seen its value shed by five percent since May when it had risen at 106.5.

Forex reserves which play a key role in stabilizing the shilling and paying off external debt have been eroded by Sh41.2 billion (369 million USD) to Sh1.01 trillion (9.07 billion USD) in a 1 month period.

A weak shilling leads to an increase in the cost of imports as more units of the local currency are now needed to exchange for the hard currencies which are used in the international markets.

The consecutive fall in forex reserves to the current 5.5 months of import cover shows how the Central Bank has engaged its over-drive gear to maintain the crawling peg of the local currency.

The Central Bank, however, remained optimistic stating that the reserves remain adequate and meet the statutory requirement of at least 4 months of import cover.

The current level beats the previous record seen in December this last year when it fell to Sh111.59 as the economy was struggling to recover from the Covid-19 pandemic.

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