The Kenya shilling weakened against the US dollar hitting a nine-month low of 110.9, amid increased import activities by local traders.
It is 0.77 units shy of the all-time high of 111.68 it hit in December 2020, for the first time in history.
The Kenyan currency was quoted at 110.7.52 last week, mainly attributable 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.
Exporters of tea, horticulture and coffee who are largely paid in dollars, on the other hand, benefit from depreciation of the Kenyan currency as they end up earning more when they exchange the payouts at banks or forex bureaus.
On a YTD basis, the shilling has depreciated by 1.6 percent against the dollar, in comparison to the 7.7 percent depreciation recorded in 2020.
Also Read:
- National Treasury to lose Ksh.39 billion in proposed fuel tax cuts
- MPs reject Treasury bid to create special fund for debt repayment
- Treasury CS Yatani warns of uncertain economic future as COVID rages on
“We expect the shilling to remain under pressure for the remainder of 2021 as a result of rising uncertainties in the global market due to the Coronavirus pandemic, which has seen investors continue to prefer holding their investments in dollars and other hard currencies and commodities,” said analysts from Cytonn.
Increased demand from merchandise traders as they beef up their hard currency positions in anticipation for more trading partners reopening their economies globally, is also anticipated to weaken the shilling further.
This will also be catapulted by rising global crude oil prices on the back of supply constraints at a time when demand is picking up with the easing of COVID-19 restrictions and as economies reopen.
