MONEY MARKET

High dollar demand piles pressure on Kenya shilling

Importers scramble for dollars as business and movement restrictions are eased

In Summary
  • Importers are scrambling for the dollar after Kenya reopened economy after three months of induced movement restrictions
  • The Kenya shilling dropped to its lowest level in valuation against the dollar crossing the Sh105 mark on March 19, the first time since September 29, 2015.
Kenya Coins
Kenya Coins
Image: Eric Thuo

Dollar demand from importers as global economies ease business and movement restrictions occasioned by Covid-19 continues to hurt the shilling, trading 107.15 against the greenback on Monday.

This is 10 basis points lower compared to Friday when it burst the 107 ceiling after trading within 106 margins since mid-March.

Speaking to the Star, money markets analyst Jeffery Waweru said the pre-Covid-19 international pressures that saw the shilling move from 100 to 105 are likely to continue as the global economy reopens.

 
 

''Traders world over are slowly returning to business and they are looking for the US dollar, the universal currency. Expect the dollar to strengthen more in the coming days,’’ Waweru said.

The Kenya shilling dropped to its lowest level in valuation against the dollar crossing the Sh105 mark on March 19, the first time since September 29, 2015.

Besides the growing demand for the dollar after Kenya reopened the economy on July 4, experts are blaming the excess liquidity in the local market to the shilling’s weakness.

According to Cytonn, there was increased liquidity in the money market in the week ended July 10, with the average interbank rate of 1.9 per cent from three per cent recorded the previous week.

This was precipitated by investors’ appetite for government papers that saw both T-bills and bonds advertised oversubscribed.                                       

The Treasury bills auction of July 9 received bids totalling Sh86 billion against an advertised amount of Sh24 billion, representing a performance of 358.2 per cent.

The yields on the 91-day, 182-day, and 364-day papers declined by 27.2 bps, 28.9 bps, and 6.9 bps, respectively, to 6.3 per cent, 6.8 per cent, and 7.7 per cent.

 
 

The depreciation of the shilling is likely to push up the cost of living for currently struggling due to constrained revenue as a result of Covid-19 effects as importers pass the bill to consumers.