Shilling drops to lowest level since September 2015

The Kenya shilling dropped to its lowest level in valuation against the US dollar crossing the Ksh.105 mark on Thursday for the first time since September 29, 2015.

The sharp devaluation saw the local unit lose nearly a shilling in value in one day as it closed the day’s trade at Ksh.105.25 from a close of Ksh.104.20 on Wednesday.

Jitters surrounding the country’s macroeconomic profile of the country on the back of confirmation on the first coronavirus case on Friday last week has continued to see investors divest from the local unit while pushing up the demand for US dollars.

With prevalent trade disruption hitting both Kenya’s imports and exports, investors have begun worrying about a worsening current account balance and an even wider fiscal deficit come the end of government’s fiscal year in June.

“The twin deficits on the fiscal and current account have always been a cause for concern,” reckoned a senior banking sector analyst on condition of anonymity.

Investors expect the twin deficits to take a turn for the worse against earlier indications on stability as Kenya’s foreign currency flows dry up from lower commodity exports, lower tourism earnings and muted diaspora remittances,

As such investors have maintained a bias or US dollars to see the shilling hit a free-fall having just crossed a five-month low Ksh.103.85 on Tuesday.

The potential for the instalment of circuit breakers by fiscal and monetary actors represented in the National Treasury and the Central Bank of Kenya (CBK) remains to be seen even as reports from sources inform of an incoming fiscal stimulus and a possible cut in base interest rate by the reserve bank on Monday.

Nevertheless interventions pushing more cash into the economy might further pack the pressure on the shilling in a counter-cyclical impact to deepen the woes for the shilling.

Already, CBK policy response in the purchase of US dollars to boost usable foreign currency reserves above their historical levels has pushed more shillings into the economy while further increasing the demand for the US dollars.

However, the Kenyan shilling is not isolated in the sharp devaluations as the country’s peer commodity-reliant economies of Nigeria, Angola, and South Africa and Zambia marking an even worse rocking of local currencies and the prices of commodities such as crude oil, iron and cooper plummet.

Central Banks in the region have had varying responses to the impending currency crises with Uganda for instance selling dollars to cover the shilling.

Meanwhile, Nigeria’s Central Bank has announced a Ksh.17.1 billion (50 billion Naira) stimulus to the economy while the South African Reserve Bank (SARB) cut its base lending rate by one percent on Thursday to 5.25 per cent.

The effectiveness of the interventions however remain to be seen as consumer demand across the world remains subdued from the partial/complete shutdown to daily routines.