•This is however the Central Bank of Kenya (CBK) indicative rate meaning importers could be accessing the dollar at a much high cost.
•The shilling depreciated against the dollar due to increased dollar demand by importers in the oil, energy and manufacturing sectors.
Image: FREDRICK OMONDI
Kenyan households stare at a steeper much cost of living as the local currency continues to tumble against the US dollar, racing towards the 121 mark on Thursday.
The shilling exchanged at an average 120.93 to the dollar from 120.60 at the beginning of the month, as global factors among them the recent 0.75 percentage point Fed Rate hike continues to pill pressure on economies.
This is however the Central Bank of Kenya (CBK) indicative rate meaning importers could be accessing the dollar at a much high cost.
It comes on the back of shrinking forex reserves which fell to $7.3 billion (Sh883.3 billion) last week from $7.4 billion (Sh895.5 billion) a week earlier—the lowest level in seven years.
The situation is compounded by lower foreign funding, faster import growth and a slowdown in remittances, which experts say will continue affecting the shilling despite CBK's interventions.
"The shilling depreciated against the dollar due to increased dollar demand by importers in the oil, energy and manufacturing sectors," currency trading solutions provider, AZA Finance, further noted yesterday.
We expect the shilling to stabilise in the coming week as the central bank continues to dip into reserves to cushion against volatility,” said Terry Karanja, Senior Treasury Associate, AZA Finance.
Financial Risk Analyst Mihr Thakar however notes with foreign exchange reserves at multi-year lows barely above the statutory limit, a high import bill and slowing remittances, it will be difficult to stabilise the shilling.
There is also potentially lower demand for flowers in developed countries and high external debt repayments, he noted.
"It will be difficult to buck the slow but steady slide of the shilling until the US Federal Reserve reaches the end of its hawkish cycle,”Thakar told the Star.
A weak shilling means an increase in the cost of goods as importers and manufacturers move to pass the higher import bill to consumers, for both raw material and finished goods, since Kenya remains a net importer.
This adds up to production and transport costs which local players say have added to the cost of doing business, with consumers having to pay the price.
“There are limits to the extent to which manufacturers can bear such costs,” Kenya Association of Manufacturers said.
Prices of commodities such as cooking oil, wheat flour, cement, soap, cosmetics imported furniture and machinery are expected to remain high, or increase.
Inflation is predicted to rise above the 9.2 per cent it hit last month, a sharp increase 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.
On September 29, CBK's Monetary Policy Committee noted the sustained inflationary pressures, the elevated global risks and their potential impact on the domestic economy.
It concluded that there was need for tightening of the monetary policy in order to further anchor inflation expectations.
MPC decided to raise the Central Bank Rate (CBR) from 7.50 per cent to 8.25 percent.
Experts however expect the shilling to stabilise as the tourism busy month of December approaches, pointing towards higher foreign currency inflows.
"With energy costs at record highs in Europe, the government must work with the private sector to package affordable holidays for those affected by cold weather,” Thakar said.