The Kenya shilling yesterday weakened against the US dollar hitting a ten-month low of 111.20, amid increased import activities by local traders.
The local currency traded above the 111 levels on Monday morning before strengthening to 110.90 in the afternoon.
The shilling was last at such high levels on December 22 last year when it hit 111.03.
According to forex traders, the shilling is likely to weaken further, due to a lack of adequate hard currency supplies and robust demand.
Researchers at AIB Capital attributed the current depreciation of the shilling to high petrol and diesel prices
“We anticipate that diesel and petrol prices will remain high as they trail global crude oil prices which have been on the rise due to global economic demand growing. This will exert more pressure on the shilling which is likely to lead to further depreciation,” the researchers said.
The cost of super petrol and diesel currently stands at Sh129.72 per litre and Sh110.60 respectively.
The latest CBK weekly bulletin however noted that the Kenya shilling remained stable against major international and regional currencies during the week ending October 14.
“It exchanged at Sh 110.81 per US dollar on October 14, compared to Sh 110.69 per US dollar on October 7 ,” CBK said.
Over the week, usable foreign exchange reserves dropped to $9,261 million (5.66 months of import cover) as at October 14 from $9,365 million (5.73 months of import cover) as at October 7.
The apex bank failed to explain the reasons for the drop, but this could be attributed to releasing dollars to the market to cushion the shilling.
The decline of the shilling is likely to lead to imported inflation where the prices of goods may rise as traders need more local currency to buy imports.
Kenya’s inflation increased to 6.91 per cent in September compared to 6.57 per cent in August, on high fuel and food prices, Kenya National Bureau of Statistics data shows.
