The Kenya shilling yesterday hit an all-time low trading at 112.43 units to the dollar, amid increased import activities by local traders.
The currency traded above the 112 levels on Thursday morning before strengthening to 111.95 in the afternoon.
Forex traders attributed the weak shilling to high dollar demand from sectors such as energy, which continued outstripping supply.
Reduced dollar inflows from key exports such as tea and horticulture combined with high demand for hard currencies for machinery, oil and capital equipment imports have continuously piled pressure on the local currency.
Further, forex reserves which play a key role in stabilising the shilling and paying off external debt, were eroded by Sh41.2 billion last month.
Currently the dollar reserves stand at $9.068billion (Sh1.01 trillion) down from $9.437 billion(Sh1.05 trillion) in the beginning of October.
Even so, the reserves meet CBK’s statutory requirement to endeavour to maintain at least 4 months of import cover as they stand at 5.54 months of import cover.
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.
According to analysts at AIB-AXYS Africa, on a year-to-date basis the shilling has depreciated by 2.24 per cent as compared to a 7.7 per cent depreciation in 2020.
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 eased slightly to 6.45 per cent in October from 6.91 in September on eased Covid-19 restrictions, Kenya National Bureau of Statistics data shows.
