Team to present recommendations on weak shilling
What you need to know:
- Currency slides further against dollar as PM’s committee prepares to show the way forward
A committee formed by Prime Minister Raila Odinga to come up with measures to stop the weakening of the shilling will present its recommendations to the government on Tuesday.
The team, which met over the weekend, is made up of technocrats from the Office of the President, the Treasury, the Central Bank of Kenya, the ministry of Planning, the Kenya National Bureau of Statistics, the private sector and Vision 2030 Secretariat.
Mr Odinga last week that the decision to form the committee became necessary after previous efforts by CBK to stem the slide did not bear fruit.
The local currency has defied all efforts to stop its slide.
On Monday, the Kenya shilling was valued at as low as Sh101.80 to the dollar before closing trading at Sh101.50/20, weaker than Friday’s close of about Sh100.20.
Though details of the committee’s recommendations are still scanty, analysts reckon that they are faced with thin options, given that the country is a heavy importer of essential commodities such as oil and food.
Kenya’s value of imports is almost 10 times the value of exports, which are mainly agriculture-based and tourism.
Lack of oil and sufficient food reserves further complicate the country’s position in shoving off external pressures.
The other suggestion was to flood the market with dollars, but it is not appealing since the country has already breached its forex reserve limits.
“The short term solution would be to manipulate the exchange rate of the shilling. One way to do this would be for the central bank to increase interest rates in order to ‘defend’ the local currency by causing it to appreciate,” said Ms Joy Kiiru, a Lecturer at the University of Nairobi’s School of Economics.
The shilling has been one of the poorest performing currencies of the world this year, depreciating by up to 25 per cent.
The Central Bank of Kenya (CBK) has on many occasions blamed the shilling’s slide on increasing dollar demand from energy and telecommunications sectors to pay for their expensive imports.
The CBK has also blamed the euro zone crisis.
