Brace for hard times as shilling sinks to new lows, experts warn
What you need to know:
- The woes afflicting the local currency have been building up over the past six months
Kenyans should brace themselves for hard times as the local currency continues to weaken further against the US dollar.
This will see a number of goods increase in prices as importers recoup the losses made in business mostly denominated in US dollars.
By the close of trading session on Tuesday, the local currency closed the day at new low of Sh95.05 against the dollar. Dealers in the market quoted the shilling at an average of Sh95, for the first time in about 17 years.
Already, market projections are pointing at an exchange rate of Sh100 by the end of the week. This will only cement the shillings position among the worst performers across the globe.
“The cost of everything will continue going higher and in these situations, I am afraid, pay cheques will never keep up,” Mr Aly Khan Satchu, a market analyst told the Nation.
Kenya is a net importer of goods and as so feels the pinch of a weakening shilling. It is estimated that about 40 per cent of Kenya’s imports are priced in dollars.
The woes of the shilling have been building up over the past six months with the Central Bank of Kenya (CBK) choosing a no intervention policy.
While this has been attributed to a number of issues, the latest pressure is pointed at demand for the dollar in the wake of food importation to ease hunger situations in Kenya and Somalia.
Additionally, the monthly cycle of the countries energy needs from the petroleum industry are at play, further pushing down the shilling.
The net effect of these is a ripple effect on the economy, which will in turn add to the already worsening inflation rates. At the end of July, the government indicated the monthly inflation rate at 5.53 per cent and is expected to rise on the basis of the current currency turbulence.
While the CBK on Monday announced that it would move to cut the exposure of commercial banks in foreign exchange, these sentiments have not had any tangible effect on the shilling.
On the flip side, dealers at commercial banks have intimated a further fall on the basis of the world economic disturbances in the USA and the Eurozone.
A loss of confidence in these economies has seen a number of investors move to regional currencies considered safe heavens.
