Kenya Shilling to Come Under Intense Pressure

The Kenya Shilling is expected to come under intense pressure in the coming days as the economy returns to normal operation. Importers are set to increase demand for dollars, thereby putting pressure on the shilling.

According to the latest weekly bulletin from the Central Bank of Kenya(CBK), the Kenya Shilling weakened against major international and regional currencies during the week ending July 17th July, 2020.

It exchanged at KSh 107.35 against the greenback on July 16 compared to KSh 106.96 on July 9th, 2020.

” Demand for dollars is now much higher than three months ago when the economy was on partial lockdown. International flights have resumed and more shipping lines are docking at the port of Mombasa. What this means is that local firms are now placing fresh orders for more raw material imports and paying for them with hard currency, pushing the US dollar to appreciate against the Shilling,” said Professor Gerrishon Ikiara, a development and policy consultant.

He told Kenyan Wallstreet that while demand for US dollars is high, Kenyan exporters are yet to resume the volumes they sold abroad before the COVID-19 period.

” With the national carrier KQ yet to resume international flights, export earnings are still weak. Forex inflows are still insufficient to meet rising demand for dollars by importers hence this imbalance,” said Prof Ikiara.

Experts maintain that the Kenya Shilling is expected to remain volatile in the coming weeks as importers, including manufacturers and oil marketers place their orders. Although the horticulture sector, a key forex earner has resumed exports to key European markets, the sector is yet to reach its previous levels.

” Reduced forex inflows, an oversupply of Kenya Shilling through reduction of CRR and no equivalent demand for the local unit, are some of the factors causing the weakening of the local currency against the US dollar,” said Reginald Kadzutu, Head of Retail at Zamara.

With Kenya forex reserves being funded by the IMF, there is a consensus among many that this has placed the Kenya Shilling at a vulnerable position.

” There is a foreign outflow from most of our capital markets and this is likely to slow down as we start the week,” said Felix Ochieng, a dealer at Faida Investment Bank.