•It hit a fresh record low this week, exchanging at 120.90 to the US dollar from 120.65 at last week’s close.
•AZA Finance notes the shilling is expected to remain under pressure amid strong dollar demand from the oil, energy and manufacturing sectors.
Image: FREDRICK OMONDI
The Kenyan shilling is projected to weaken further in the next one week amid strong dollar demand by imports, indicating a continued rally in prices of imported commodities.
This is after a fresh record low this week, exchanging at 120.90 to the US dollar mid-Friday morning, from 120.65 at last week’s close.
According to experts at currency trading solutions provider, AZA Finance, demand from key importers such as the oil sector remained elevated, a trend that is expected to pile pressure on the local currency.
“We expect the shilling to continue weakening in the next seven days amid strong dollar demand from the oil, energy and manufacturing sectors,” said Terry Karanja, Senior Treasury Associate, AZA Finance.
Meanwhile, the forex reserve dropped to $7.42 billion(Sh 896.7 billion) from $7.45 billion (Sh900.3 billion)a week earlier, sufficient for 4.19 months of import cover.
The shilling is however not exclusive as major currencies around the world that are pegged to the US dollar, are under pressure from the declining availability of external financing.
This is in addition to external debt repayments that are putting pressure on the current account deficit, Financial Risk Analyst Mihr Thakar notes.
“There is some potential in increasing demand for the Kenya shilling by jacking up government domestic borrowing rates, but fiscal room for drastic measures is acutely limited, with debt service to revenue ratio closer to 60 per cent,” Thakar observed.
The Central Bank of Kenya has previously initiated mop-ups to stabilise the currency which has been on a losing streak this year, with concerns it could hit an all-time historic low of above 121 to the greenback.
A weaker currency means Kenyan households will have to contemplate high commodity prices, as the country remains a net importer.
This will hit hard homes that have continued to battle month-on-month increases in inflation, which hit a 63- month high in September, at 9.2 per cent.
This was up from 8.5 per cent in August.
The Kenya National Bureau of Statistics (KNBS) has attributed the high cost of living to a sharp increase in the cost of food, fuel and cooking oil over the past 12 months.
The last time the country witnessed this kind of inflation was in June 2017 when it hit 9.21 per cent.
The statistics body said the inflation was largely driven by the average cost of food and non-alcoholic drinks which climbed 15.5 per cent.
Housing, water, electricity, gas and other fuels index increased by 7.3 per cent in the last 12 months.
The World Bank has however projected the cost of living to drop from January as volatility in the global market eases.
The global lender in its latest economic outlook for Africa has projected the country's inflation to ease to 6.4 per cent in 2023, and 5.5 per cent the following year.
High taxation on basic commodities, including bottled water, has been blamed for making life unbearable for most households.
President William Ruto’s government has however indicated intentions to reduce the cost of living.
It also seeks to reform the country’s tax system by making it more progressive so that tax burdens increase with income.