Kenya shilling falls to a new record low


Kenya shilling falls to a new record low

In Summary

  • The local unit has so far in the year lost 7.2 percent of its value against the U.S. dollar.
  • Weakening of local currencies hold contrasting effects including lowering the value of goods from a country to have a multiplication effects on export volumes.
  • On the flip side, weaker currencies make imports expensive while raising the cost of debt-servicing.

The Kenya shilling touched a new low in Wednesday’s trading session against the U.S. dollar as the local unit now sees new bouts of volatility.

The shilling traded at Ksh.108.57 at the close of the session after cutting a day’s range of Ksh.108.42 and Ksh.108.66.

The renewed weakening is partly attributed to high dollar demand from importers following the re-opening of economies around the world along with high liquidity in the interbank market.

The Central Bank of Kenya (CBK) has previously attributed the weakening to an unmatched demand for the green buck at a time when global crude oil prices have picked up in line with ease of COVID-19 restrictions.

“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 in a weekly bulletin in July.

Meanwhile, the interbank market has remained awash with liquidity from a combination of government payments and company annual dividend pay-outs.

The two greatly translate as settlements to foreign investors. High liquidity has meant more shilling units chasing for fewer treasured dollars at this time.

To combat the weakening which additionally features lower foreign currency receipts from exports, the CBK has favoured shilling-mop ups over dollar selling to stem the volatility.

For instance, the CBK mopped up/purchased Ksh.495.2 billion worth of local currency through repurchasing agreements (repos).

This as it seeks to provide stability in the shilling’s value by reducing the amount of money in circulation.

The reserve bank has largely stayed off dollar sales with its usable foreign currency reserves remaining largely unchanged in recent weeks.

The reserves for instance stood at Ksh.999 billion ($9.2) billion in the week ending August 13 or an equivalent 5.61 months of import cover.

Traders however note the CBK has recently stepped off the gas by easing on the mop-ups as the new bouts of volatility hit.

CBK Governor Patrick Njoroge however remains unfazed by the direction of the shilling insisting the regulator remains in touch with movements of the local unit to either side, only intervening to minimize volatility.

The local unit has so far in the year lost 7.2 percent of its value against the U.S. dollar.

Weakening of local currencies hold contrasting effects including lowering the value of goods from a country to have a multiplication effects on export volumes.

On the flip side, weaker currencies make imports expensive while raising the cost of debt-servicing.

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Story By Kepha Muiruri
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