Central Bank of Kenya Governor Patrick Njoroge Monday said rogue elements in the currency market and some traders who had ‘misunderstood’ the regulator’s dollar buying programme had contributed to the weakening of the shilling against the dollar.
The Kenyan shilling was trading at an all-time low of 106.70 units against the dollar Tuesday, having depreciated by 6.2 per cent from 100.40 units in February.
Dr Njoroge said during a briefing on monetary policy that these traders had compounded the problem for the shilling even as the US dollar strengthens globally wreaking havoc on several currencies.
“In early March we made it clear that we expected a reduction in demand of foreign currency in the market from oil companies. Some dealers misunderstood this…that is I guess the fears they had,” Dr Njoroge said in the post MPC briefing.
“Another point relates to some indiscipline by malicious traders in the market. Unfortunately we have not been spared of that scourge. We have seen it in other markets as well.”
The foreign exchange market has recently experienced some volatility, largely due to uncertainties related to the impact of Covid-19 and a significant strengthening of the US dollar.
The cancellation of horticultural export orders and low tourist inflows s have strained Kenya’s dollar earnings.
The coronavirus is also likely to hit diaspora inflows.
Lockdowns imposed globally and the resulting economic upheaval means that Kenyans living abroad may not have enough to send home, hurting our main source of dollar flows.