•The local currency, which has been on a back foot since mid-2018 when it stood at 101.29, is expected to further drop analysts have predicted.
•It could hit 150 by December according to a recent report by Absa Bank.
Image: FILE
The Kenyan shilling hit a record low during the week ending June 8, crossing the 139 mark to the US dollar, setting the ground for a further jump in the cost of living expected to hit households.
Central Bank of Kenya (CBK'S) weekly bulletin shows the shilling exchanged at 139.11 per US dollar on June 8, compared to 138.49 per US on May 31.
The local currency, which has been on a back foot since mid-2018 when it stood at 101.29, is expected to further drop analysts have predicted.
It was averaging 124.49 to the dollar in January.
The latest developments now pile pressure on manufacturers and importers with an expected rise in commodity prices, as the country remains a net importer.
Banks have been asking for more than Sh142 for a dollar, way above the Central Bank of Kenya's average, meaning traders will have to cough more to get enough to pay for imports.
Last year, the Kenyan shilling depreciated against, the US dollar (7.5 per cent), the UAE dirham (7.5 per cent), Saudi Riyal (7.4 per cent) and the Chinese Yuan (3.1 per cent), the Economic Survey 2023 indicates.
Within the EAC, the Kenyan shilling weakened against the Tanzanian and Ugandan shilling by 7.0 per cent and 4.5 per cent, respectively, in 2022.
According to the Kenya Association of Manufacturers (KAM), industries will have to pass extra costs to consumers.
“We have no option but to pass extra costs to consumers,” KAM told the Star, with raw materials being the most hit in the sector.
Other commodities whose prices are expected to increase include petroleum products, which will have implications for the cost of transport, farm production, and electricity among others.
Prices of food products such as cooking oil, wheat, maize and other imports are also expected to increase, as the country remains a net importer mainly from Asia.
This will add pressure to households who are already grappling with historic prices of sugar, and exorbitant costs on other food commodities.
Inflation which picked up to eight per cent in May, from 7.9 in April, is expected to increase this month.
The shilling is expected to remain weak with projections of further drops in the medium-term amid persistent forex demand from importers, as well as the impact of rising inflation, according to trading solutions provider – AZA Finance.
“We expect the shilling to continue depreciating in the near term,” said Terry Karanja, senior treasury associate at AZA Finance.
Renaissance Capital has also projected a further slide on the shilling.
"The dollar is expected to continue with its charm offensive in the coming months, a move likely to further hurt weak currencies, piling pressure on already high inflation,'' the financial service advisory firm said.
Data analyst and financial expert Mihr Thakar, said the risks of the shilling are multifold.
Those in obvious areas are continuing to face hikes or persistent high rates in the US, slow down in export receipts and remittances and confidence issues," Thakar said.
The weak shilling is among a major concern by CEOs in the country, a Central Bank of Kenya survey in May indicates, alongside proposed tax increases in the Finance Bill and reduced liquidity in the market.
These, the surveyed captains of industry, indicated could derail growth in the private sector.
Coupled with increases in fuel prices, they are seen as a major contribution to the cost of doing business in the country; at a time households are struggling with reduced disposable income hence lower purchasing power, the captains say in part.
Analysts at Absa Bank last month indicated the shilling could hit a low of 150 by December, despite the slight ease in global economic constraints.
According to Jeff Gable, the head of FICC Research and chief economist for Absa, the local currency was projected sometime last year to continue weakening to a better part this year, on the back of hiked interest rates by global lenders in efforts to curb inflation.
"The trend will keep on for the rest of this year," Gable said.