Kenyan shilling is expected to hit a high of 120 against the US dollar by December, a move likely to pile pressure on worsening cost of living in the country.
According to the latest analysis of the Kenyan shilling by Forecast Economics, ongoing Russia - Ukraine crisis, upcoming general election and the Fed’s increasingly hawkish tone are likely to further pin down the shilling which was weighed down by Covid-19 pandemic.
"The depreciating trend will he higher than anticipated, amplified by election-related uncertainty, which typically saps confidence, taking the shilling to close to 120 by year-end,'' ForecasEconomics said.
The economic body had earlier projected the shilling to close 116.70 by December.
The local has been hitting new record lows on a daily basis since early November last year, largely weighed on by a stronger greenback due to ongoing geopolitical dilemma.
It expects the pace of decline to moderate over the remainder of the forecast period, helped in part by monetary tightening, leading to an we average exchange rate of Sh126.5 per US dollar by 2026.
Yesterday, the shilling dropped to 115 against the dollar compared to Sh114.86.
The shilling has depreciated 1.52 per cent since the beginning of the year, but more analysts expect worse in coming months.
A development economist Duncan Okech agrees with the projections, adding that expected foreign investor flight due to upcoming general election could worsen the situation.
"The shilling is really taking a hit from ongoing local and international factors. Election fever will crown the situation. Currency depreciation is, however a global phenomenon'', Oketch told the Star on phone.
Last Friday, Central Bank of Kenya maintained that it still has enough Forex reserve to manage external volatility.
The depreciating shilling continues to hurt the cost of living in the country, with importers passing the rising bill to end consumers.
This is exacerbated by rising fuel prices in the global market, with a barrel of of oil expected to hit USD150 for the first time in history.
Fuel prices rose for the first time since November last year with the cost of petrol increasing to Sh134.72 compared to Sh129.72 in the previous month.
In the latest review by the Energy and Petroleum Regulatory Authority (EPRA), the cost of diesel increased by Sh5 to Sh115.60 while the price of Kerosene was retained at Sh103.54.
The cost of a litre of petrol would have risen to Sh155 if the partial subsidy plan by the government was not in place.
The prices are expected to hit an all time high in the upcoming review after the government hinted of doing away with plan.
However, the situation is a boon for exporters of tea, horticulture and coffee who are largely paid in dollars and benefit from a weakening Kenyan currency as they end up earning more.
Even so, the depreciation is not favouring the trade.
The latest official data shows imports rose 20.87 per cent year-on-year to Sh194 billion in January compared with an 11.21 per cent rise in exports to Sh60.41 billion.
