The Kenyan shilling hit a new all-time low against the US Dollar on Tuesday, signaling even costlier imports and ultimately further pushing up the cost of living.
The local currency, which has been on a losing streak since December, weakened to 117.95 as recent US Fed and other major rate hikes continue to impact currencies across markets.
This comes as the dollar continues to remain a safe haven for investors in the wake of global uncertainties occasioned by, among other factors, the Russia-Ukraine war.
The shilling, which has lost about five units since December (113) opened the week at 117.89 on Monday, weakening from 116.81 in the week ending June 30.
The continued weakness comes as elevated demand for the greenback from the energy and manufacturing sectors bumps against an ongoing shortage of forex reserve, according to experts at currency trading solutions provider, AZA Finance.
“This dollar scarcity coupled with higher production costs has put further strain on the cost of living. We foresee the shilling losing further ground in the coming weeks ahead of August’s presidential election,” notes Terry Karanja Senior Treasury Associate, AZA Finance.
Local manufacturers have also decried a dollar shortage in recent weeks, with fears of a developing black market.
The shortage, which has affected orders of raw material and high import costs has seen prices of basic commodities such as flour, cooking oil and other consumables increase.
The depreciation is further attributed to increased demand for dollars from importers of oil, industrial inputs and machinery, which have increased at a far more severe pace and intensity than the price of Kenya's predominantly agricultural exports.
Prices of petroleum products have also gone up on high crude prices and a weak shilling.
The country’s inflation hit a two-year high of 7.9 in June, above the government's ceiling by 40 basis points.
According to Financial Risk Analyst Mihr Thakar, the price increases have however been across the board, meaning that the effect on the trade deficit is moderately negative, albeit still an outlier scenario.
“Most commodity importer frontier and emerging market currencies are affected by the surging prices of imports in the international markets. Moreover, the rising rates in developed countries are making investors risk averse to the assets and currencies of third-world and highly indebted countries,” Thakar said.
The Central Bank of Kenya has however remained firm the country has enough dollars, with the shilling remaining stable.
The usable foreign exchange reserves remained adequate at $7.98 billion (Sh941.9 billion) as of June 30, CBK said in its weekly bulletin on Friday.
This is 4.74 months of import cover.
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