Shilling falls to new dollar low of 122 – The Star Kenya
•Cost of imports to increase amid rising month-on-month inflation which hit 9.6% in October, from 9.2% in September.
•IMF funds are however expected to support the shilling.
The Kenyan shilling has hit a new record low against the US dollar with an expected further slump on continued external pressures.
The local currency weakened to 122.06 on Thursday before slightly gaining to 122.03 on Friday, as demand for the dollar from the manufacturing and energy sectors showed little sign of abating.
This now adds pressure on households as the cost of imports is set to increase, amid rising month-on-month inflation which hit 9.6 per cent in October, from 9.2 per cent in September.
It was the steepest inflation rate since May of 2017, breaching the upper limit of the central bank’s target range of between 2.5 per cent and 7.5 per cent for the fifth month.
The overall inflation was largely driven by prices of food and non-alcoholic beverages, transportation and housing and utilities, with Kenya remaining a net importer.
“Rising inflation led by higher food and fuel prices is denting economic activity, especially for small businesses which are forced to absorb the high input costs at the same time as declining consumer spending,” notes Terry Karanja, senior treasury associate, AZA Finance.
According to the currency trading solutions provider, incoming IMF funds are however expected to support the shilling.
The government is expected to receive $433 million (Sh 52.8 billion) from the IMF as part of the $2.34 billion (Sh285.6 billion) loan facility agreed last year.
The funds will help to cover external financing needs, which have been strained by drought and challenging global financing conditions.
“We expect the IMF funding and adequate forex reserves to support the shilling in the week ahead,” Karanja said.
The US fed has continued to signal an aggressive rate stance as it seeks to tame inflation which is working against global currencies, among them the shilling.
The Central Bank of Kenya’s Monetary Policy Committee (MPC) in September
raised the base lending rate from 7.50 per cent to 8.25 percent as part of measures to stabilise the shilling and address the rising inflation.
Experts expect the shilling to stabilise as the tourism busy month of December approaches, pointing towards higher foreign currency inflows.
“With energy costs at record highs in Europe, the government must work with the private sector to package affordable holidays for those affected by cold weather,” Financial Risk Analyst Mihr Thakar said.
The shilling has shed some 7.9 per cent of its value against the US dollar in the year to date.
A weak shilling means an increase in the cost of goods as importers and manufacturers move to pass the higher import bill to consumers, for both raw materials and finished goods.
This adds up to production and transport costs which local players say have added to the cost of doing business, with consumers having to pay the price.
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