The Kenya Shilling continues to weaken against the US Dollar after touching a new record low of 108.20 on Wednesday’s trading session. The shilling had hit another record low of 107.9400 against the dollar on Tuesday’s session.
Analysts have ruled out any meaningful intervention from the Central Bank of Kenya (CBK), which could be forced to keep its distance and allow the local unit to slide further.
Expectations are that it will take a while before the current volatility in the forex market subsides. With the Central Bank expected to meet loan interest payments due in August and forex inflows into its reserves remaining insufficient, analysts argue that it is in the best interest of the monetary authority to let the Shilling fall against the US Dollar, at least for now.
“The recent IMF budgetary support to Kenya had strings attached, including leaving the local currency to free float. The CBK is thus presently limited in terms of interventions to prop up the Shilling,” said Reginald Kadzutu, Head of Retail, Zamara.
The Central Bank of Kenya(CBK) today quoted the Kenya Shilling at a mean rate of 107.8797 against the US dollar, buying at KSh 107.7800 and selling at KSh 107.9794 against the greenback. These rates, released daily by the CBK, are merely indicative and meant to help those exchanging currencies gauge the value of the Kenya Shilling on any given day.
Worldwide, the International Monetary Fund(IMF) has already warned that the dominance of the US Dollar could amplify the impact of COVID-19 pandemic on the recovery of the global economy.
The US Dollar’s exchange rate will be a key factor in the pace of global economic recovery while domestic currencies will have a smaller impact as the world struggles to bounce back from the pandemic, according to a study by the IMF.
In an IMF discussion note titled ‘Dominant Currencies and External Adjustment’, the Fund said the US Dollar’s role in trade and finance will exacerbate the impact of coronavirus on the global economy. Emerging markets currencies have seen their value plummet against the dollar during the pandemic, raising hopes that weaker exchange rates will make their exports more competitive and boost struggling economies.
But the IMF disagrees. It said weaker exchange rates would be less effective shock absorbers due to the dominance of the dollar in world trade.
“When the greenback strengthens, it becomes more expensive for countries outside the US to pay for imports, reducing demand and in turn, economic activity,” said the IMF note.
The Fund said that despite a recovery in markets and budding optimism about the prospects of the global recovery, there is a risk that another surge in the dollar’s exchange rate could put a drag on activity.