•The Kenyan shilling has continued to weaken against the US dollar, hitting a low of 123.77 to a unit of a dollar on Thursday, down from 123.72 on Wednesday.
•It opened the year at 123.42 with the local currency shedding about 10 per cent of its value to the dollar year-to-date.
Image: FILE
Kenyan households are staring at tougher times ahead as the shilling rallies towards a new historic low of 124 against the dollar, a catalyst for expensive imports and high inflation.
The Kenyan shilling has continued to weaken against the US dollar, hitting a low of 123.77 to a unit of a dollar on Thursday, down from 123.72 on Wednesday.
It opened the year at 123.42 with the local currency shedding about 10 per cent of its value to the dollar year-to-date.
The US dollar is predominantly the standard currency unit in which goods are quoted and traded, and with which payments are settled.
It is also the world's reserve currency.
A weak shilling means importers will spend more to bring in goods into the country with Kenya remaining a key importers, with a trade deficit of about Sh1.407 trillion.
This is on annual imports valued at Sh2.151 trillion against exports value of Sh743.7 billion–Economic Survey 2022.
Manufacturers importing raw material are also affected with higher import bills on the weakening shilling.
This means commodity prices are set to increase this month mainly as importers, manufacturers and local traders move to pass the costs to the consumers.
Key imports include petroleum products, machinery, medicine and pharmaceuticals products, vegetable oil, wheat, clothing and shoes, clinker, electrical and electronics.
Kenya also imports construction materials for value addition, agricultural raw material imports, textile value addition items, steel among others.
An increase in commodity prices will add pressure to households who have since are grappling with a high cost of living which hit a five-year high of 9.6 per cent in October, before slightly easing to 9.5 per cent and 9.1 per cent in November and December, respectively.
This however remains above the preferred ceiling of 7.5 per cent.
‘The rise in inflation was largely due to increase in prices of commodities under food and non-alcoholic beverages, transport and housing, water, electricity, gas and other fuels between December 2021 and December 2022,” Kenya National Bureau of Standards says in its latest inflation update.
Prices of commodities under furnishings, household equipment and routine household maintenance recorded a 9.9 per cent increase over the period, with China being a major key import source of such products.
"The weakening has resulted in higher import costs of raw materials for manufacturers, as well as higher food, transport and household commodity prices more broadly,” trading solutions provider, AZA Finance notes.
Some banks have been selling the dollar way above quoted official rates, with rates of above 130, putting traders in a tight position as it limits their import power.
The weak shilling comes amid shrinking forex reserves which continue to remain in high demand from manufacturers, oil and energy sectors.
Foreign currency reserves declined to $7.38 billion (Sh914 billion) from $7.44 billion (Sh921.4 billion) week earlier.
"We expect the shilling to remain under pressure in the week ahead, with central bank support likely to prevent a steeper decline," said Terry Karanja, Senior Treasury Associate, AZA Finance.
On Wednesday, National Treasury Cabinet Secretary Njuguna Ndung'u warned Kenyans of tough economic times ahead.
This is in the wake of rising energy and food prices and disruption i the global supply chain occasioned by the Russiar-Ukraine war.
Meanwhile, the weak shilling continues to be a blessing to exporters of horticulture produces, tea, and coffee, who are largely paid in dollars.
CBK has been putting a number of measures to stabilise the local currency, among them the recent back-to-back increases on its base lending rate from 7.5 per cent to to 8.25 per cent, and then 8.75 per cent.
While it makes access to credit more expensive, reducing borrowing, it is also aimed at taming inflation as few people with purchasing power chase available goods and investments.
Such a move also helps cushion the local currency as it attracts foreign dollar-based investments.