High dollar demand sends the Shilling rocking past Ksh.108 mark

The Kenya shilling has sunk to a new low having breached the Ksh.108 mark against the US dollar on Wednesday.

The Central Bank of Kenya (CBK) quoted the shilling at Ksh.108.12 against the US dollar at Wednesday’s close with the local unit having taken a depreciating curve from a high of Ksh.100.21 at the beginning of February.

The recent trend in depreciation is against the CBK’s efforts to mop up the local unit to rein in further depreciation having tapped Ksh.22.6 billion last week.

In its weekly bulletin, the reserve bank attributed the weakening to an unmatched demand for dollars in the interbank market.

“The Kenya shilling weakened against major international and regional currencies during the week on account of unevenly matched demand and supply of dollars in the interbank market,” the CBK said on Friday.

Analysts however hold mixed views to the observed depreciation which has raised uncertainty in the forex exchange market.

With the CBK usable foreign currency reserves-which are sold to minimize volatility barely untouched in the past two weeks, Reginald Kadzutu an market analyst and project head at Zamara believes the reserve bank is allowing the local unit to move to its true value trapped one hand by approaching interest payments on external debt.

“There being no sustainable inflows in foreign currency, the CBK can’t intervene as much and would allow the Kenya shilling to slide in cognizant of due interest payments,” he said.

An analyst who requested anonymity meanwhile attributes the slide to recent guidance from the International Monetary Fund (IMF) which had requested the CBK to cushion the economy by allowing it to slide away.

While weaker currencies can carry consequences such as higher external debt payment costs and imports, the weaker base can have the reverse effect of stimulating exports decreasing a country’s trade deficit.