Tough times for importers as shilling hits new low

The shilling hit a new low against the dollar on Thursday as traders scrambled for the universal currency after Kenya opened its economy.

This is likely to push up the cost of living as importers pass the bill to consumers, who are already pressed by economic pressures of Covid-19 and a recent increase in fuel prices. 

The Google currency tracker captured the shilling at 107.45 against the greenback at 10 am the lowest mark in a decade. 

The shilling, which was performing well before the country reported its first coronavirus case in mid-March started losing ground against international major currencies, dropping from a low of 100.29 on February 20. 

Money market analysts are of the view that the local currency is likely to depreciate further as the world slowly rises from vagaries of Covid-19.

In a tweet, financial expert Aly Khan Satchu said he is less optimistic about the shilling.

''I am bearish,'' Satchu said. 

Dave Amugune said there is a high demand for the dollar globally as traders return to business after Covid-19 lockdowns and other operational restrictions. 

''We should expect the high demand for the dollar to persist for the next two months. People are buying to store wealth, competing with importers,'' Amugune said. 

He also attributed the drop to excess liquidity in the market, with commercial banks’ excess reserves standing at Sh29.8 billion in relation to the 4.25 per cent cash reserves requirement (CRR).

According to the CBK Weekly bulletin, there was increased liquidity in the money market in the week ended July 10, with the average interbank rate of 1.9 per cent from three per cent recorded the previous week.

Reginald Kadzutu however believes the shilling has been overvalued all through and that its true value is about to manifest.

''Shilling has been overvalued and supported by CBK for a while, with forex reserves funded by debt the country is not generating enough dollars, meaning there will be volatility around forex debt payments which limits CBK ability to support the shilling, so the slide will continue,'' said the  expert at Zamara financial services. 

This position has been discounted by Central Bank of Kenya governor Patrick Njoroge.

Kadzutu explained that the consumer price index which was at Sh97 in 2009 had since risen to Sh192, meaning that Kenyans are spending Sh192 to buy what could be bought at Sh100 ten years ago, translating to 50 per cent devaluation of purchasing power.

IMF accused Kenya of propping up the shilling, arguing that it is overvalued at by over 17 per cent.

CBK  refuted those claims, stating that IMF unfairly valued the shilling.

''The local currency's stability is supported by stable microeconomic fundamentals and that the value is of free float nature,'' CBK said.