Shilling weakens to lowest level since Sept 2015

The shilling Thursday weakened to a four-and-a-half-year low against the US dollar, mainly on fears about the potential drop of hard currency inflows caused by the coronavirus outbreak.

The Kenyan currency was selling for 105.3 units against the dollar at around 5 p.m. compared with 104.22 units at the close of trading Wednesday, the weakest level since September 2015.

The fall of the shilling is linked to create uncertainty over inflows of hard currency from sources such as remittances, horticulture and tourism—which have all been hit by lockdowns and travel restrictions aimed at limiting the pandemic.

Businesses which rely on export markets, such as flower growers, have started feeling the heat, deepening the worries in the market about the supply of dollars.

Kenya received Sh283 billion from remittances last year and Sh142 billion from horticulture.

Currency traders, who spoke off-the-record because of fear of reprisal from the Central Bank of Kenya, said the shilling was also feeling the heat from a deteriorating risk appetite globally that is pushing investors to buy the greenback, considered most liquid and safest.

“Demand side (for the dollar) is more at the moment, and this is happening everywhere – not only to us,” said a forex dealer at one of tier-one banks.

“It has come as a result of global forces and generally everything follows in line whereby the dollar is strengthening.”

A weaker shilling will see the cost of imported commodities like cars, machinery, pharmaceutical products and clothing rise and traders pass on the additional shipment costs to consumers.

It will also cut the benefits expected from the fall in crude prices, hurting motorists and households that use kerosene for cooking and lighting.

The weaker shilling will also put pressure on the foreign exchange levy in electricity bills, which changes monthly based on dollar transactions by power generators and distributor, Kenya Power.

The shilling had closed Wednesday’s session at 104.10/30 per dollar and traders said it had also been hit by pressure from foreign investors after global markets slumped.

“The local clients are on the same page with global clients... Everyone wants cash and they want that cash in dollars,” a trader told Reuters.

Kenya confirmed its first case of the coronavirus last Friday, causing the shilling to weaken and forcing trading on the Nairobi bourse to be halted after a steep drop.

The confirmed cases have since jumped to seven and the government has shut down schools indefinitely, banned large public gatherings and limited entry into the country for people from countries with high cases of the virus.

The travel restrictions, which has affected about 88 percent of foreign travellers, is hurting tourism that earned Kenya Sh163 billion last year.

Hotels are reporting occupancy of about 20 percent compared to about 75 percent this season last year.