Shilling slumps below 95 to dollar
What you need to know:
- The local unit, which is five per cent weaker this year, has come under pressure from demand by corporates and importers of capital goods for various infrastructure projects ongoing in the country.
- Analysts at NIC Bank indicate the widening current account deficit, a strengthening dollar and lower inflows due to a slump in tourism caused by terrorist attacks, remain key risks to the unit.
- The Central Bank of Kenya’s Monetary Policy Committee is expected to meet today without a governor to set the benchmark lending rate that has been at 8.5 per cent for about two years.
The Kenyan shilling continued its losing streak against the US dollar, breaching the 95-point mark on May 5, 2015 as analysts said increased demand for the greenback against limited supply will lead to further weakening.
The local unit, which is five per cent weaker this year, has come under pressure from demand by corporates and importers of capital goods for various infrastructure projects ongoing in the country.
The currency closed trading on Tuesday at 95.05/95.15 against the dollar compared to Monday’s trading of 94.80/94.90.
“The economy is growing and there’s great demand for dollars for import of capital goods. Increasing demand for the dollar continues to put pressure on the shilling,” National Bank of Kenya’s head of trading, Chris Muiga, told the Nation by phone.
At the moment, the shilling is trading at its lowest level in three years. Analysts at NIC Bank indicate the widening current account deficit, a strengthening dollar and lower inflows due to a slump in tourism caused by terrorist attacks, remain key risks to the unit.
According to Standard Chartered Bank’s April 2015 Business Sentiment Index released yesterday, business leaders continue to be wary of the ongoing depreciation of the local currency against the dollar. The leaders fear that the fall could lead to high prices for imports, which will affect those of inputs and consequently the final costing of products.
The weakening of the shilling is likely to be one of the immediate points of concern for the new central bank governor.
The Central Bank of Kenya’s Monetary Policy Committee is expected to meet today without a governor to set the benchmark lending rate that has been at 8.5 per cent for about two years.
Former governor, Prof Njuguna Ndung’u, chaired the last MPC meeting in March before leaving office the same month, with President Uhuru Kenyatta expected to name a new chief together with a deputy and chairman of the banks’ regulator.
“The CBK is having a closer look at the currency. At the moment, there are sufficient reserves to cushion the shilling,” Mr Ignatius Chicha, head of markets at Citibank Kenya yesterday.
