The kenyan shilling has weakened to a record low against the dollar. On Friday, the Kenyan currency hovered towards 115 units against the globally bullish dollar.
The decline was attributed to higher demand for the US currency by importers of petroleum products and other items such as industrial supplies, coupled with a fast-rising import bill that has outstripped earnings from exports, diaspora remittances, and tourist receipts.
A depreciating shilling means importers spend more on bringing in goods such as petroleum products and raw materials for factories, which results in rising input costs for firms that usually pass much of the additional expenses to consumers.
“There’s a widening [supply-demand] mismatch which is causing weakness as the demand side for the greenback which is rising faster than supply. Demand is generally coming from importers, but it’s difficult to say which sector (is driving it), although you would expect much of that demand to be from oil companies due to uncertainty in global oil prices.” a forex trader at a tier-one bank.
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.
The latest official data shows imports rose 20.87 % year-on-year to Ksh 194 billion in January compared with an 11.21 % rise in exports to Ksh 60.41 billion.
The shilling has depreciated 1.47 per cent since the beginning of the year, but analysts expect worse in coming months due to expenditure on materials for the August poll and runaway oil prices.
“Looking ahead, the currency is set to continue losing ground against the USD on the back of election-related uncertainty, a wide current account deficit and eroded foreign exchange reserves,” analysts at Barcelona-based FocusEconomics wrote in a report last Tuesday.