DROP

Kenya shilling drops to a new low against the dollar

It was trading at 107.85 by noon

In Summary
  • The continued depreciation of the shilling is likely to further push up the cost of living for households as importers pass the hiked bill to consumers.
  • Financial experts have warned of a further decline, with some projecting it to drop to 110 by the end of this week.
The US Dollar notes./ELKANA JACOB
The US Dollar notes./ELKANA JACOB

The Kenya Shilling has hit a new low against major global currencies, trading 107.85 against the US dollar on Tuesday the morning.

This was attributed to the high demand for the dollar by importers as the world opens up for business after Covid-19 lockdowns.

The shilling opened the day at 107.50 but dropped sharply by the hour, as demand for the global trading currency.

 

It has also dropped significantly against the Starling Pound, dropping to 136.74 from 134 in less than a week. It had sunk 13 per cent against the Queen’s currency in just four months. It has also lost major ground against the Euro, currently trading at 123.21.

The continued depreciation of the shilling is likely to further push up the cost of living for households as importers pass the hiked bill to consumers.

It is also expected to see the country pay more for dollar-denominated loans, which rose to Sh3.49 trillion in May from Sh3.31 trillion in April, pushing up Kenya’s total public debt to Sh6.5 trillion.

Financial experts have warned of a further decline, with some projecting it to drop to 110 by the end of this week.

Financial analyst, Aly - Khan Satchu recently told the Star that he was less optimistic about the shilling, indicating that it is likely to drop further against world currencies.

 
 
 
 
 

Yesterday, Paul Magomere, a UK based money markets expert asked households in import depended on nations including Kenya to brace for tougher times ahead as the dollar strengthened on high demand.

''The rush for the dollar was expected. This is going to take a toll on consumers in import depended nations. Kenya imports most of its food. Petroleum products likely to go up, pushing up the cost of transport,’’ Magomere said.

 

Yesterday, the International Monetary Fund (IMF) weighed in the currency debate with a blog titled ‘Dominant currencies and limits of exchange rate flexibility’.

Scholars at the international lender said the shock of collapsing global demand and commodity prices, capital outflows, major supply chain disruptions and a generalized drop in global trade, many emerging markets and developing economies’ (EMDEs) currencies have weakened sharply.

They wondered if these currency movements support the recovery of these economies.

''The prevalence of dominant currencies like the US dollar in firms’ pricing decisions alters how trade flows respond to exchange rates,’’ IMF officials said.

The strengthening of the dollar is however a blessing to exporters who are likely to reap more in value.

Kenya’s horticultural sector which came to a near standstill in March as the world tightened trade restrictions to curb the spread of Covid-19 has started to rebound, with Kenya Flower Council for instance saying the demand has recovered to around 85 per cent.

This means flower exporters are likely to earn at least Sh2 extra per dollar with the strengthening of international currencies especially euro, considering that Kenya exports almost 80 per cent of its horticultural products to Europe.

Local receiving funds from their relatives abroad are also likely to benefit from the currency volatilities.         

Cash sent home by Kenyans living in North America hit a historic high of Sh15.7 billion ($145.95 million) in May, defying the tough economic situation facing workers in the region since the Covid-19 pandemic struck.

Central Bank of Kenya data shows the remittances from the region, which includes Canada, the United States and Mexico, rose by Sh2.5 billion or 19.6 per cent from Sh12.76 billion ($118.71 million) in April.