The Kenyan Shilling slumped to a historic low against the US Dollar Tuesday, signaling tough times for Kenyans ahead of the festive season.
According to data from the Central Bank of Kenya (CBK), the local unit exchanged at Ksh.112.91 against the United States Dollar, its lowest valuation ever.
While the weakening of the shilling has not been traced to one specific factor, analysts have pointed to a number of elements dwindling the local unit’s value.
This includes rising uncertainties at the global marketplace, a widening current account deficit at the restart of international trade and a skewed demand for dollars, especially from oil importers.
In the year to date, the shilling has shed 3.4 percent of its value against the dollar.
While attributing the weakening to a stronger dollar, CBK Governor Dr. Patrick Njoroge has retaliated that the reserve bank continues to monitor the unit to minimise instances of volatility.
“At the end of the day, our exchange rate policy has not changed and ours is really a flexible exchange rate regime and we intervene just to minimise volatility but we do not set a direction or level. We allow the markets to push the exchange rate, strengthen and weaken it, as long as there is no volatility,”
In most cases, however, the weakening of the shilling can mainly be attributed to increased dollar demand from the energy sector importers.
A weaker shilling means importers spend more to bring in goods such as petroleum products and raw materials for factories, a development which may result in price increases for consumers in a net import economy.
In the previous fiscal year, Kenya’s debt repayments jumped by about a fifth to 781 billion shillings on account of the local currency’s depreciation, according to Treasury.
The shilling plunged 7.4 percent in the year through December, hurt mainly by the uncertainty brought by the COVID-19 pandemic.
“Recent exchange-rate fluctuations have been more modest,” Tobias Rasmussen, the International Monetary Fund’s resident representative for Kenya, said in a response to Bloomberg adding that “We continue to view that maintaining exchange-rate flexibility helps the economy absorb potential shocks.”
Slightly more than half of Kenya’s debt is held in foreign currencies. The proportion of external debt in U.S. dollars was 66 percent by June 2021, and 19 percent in euros, according to the Treasury.
