Shilling hits record low against dollar
HEADWINDS: Shilling sank to a record low on Friday as political headwinds, inflation and high debt burden weigned in, before paring losses to trade at Sh119.9.
The local currency has been on a steady decline, dropping to Sh120 per dollar from Sh109 last year, setting the ground for costlier imports and a rise in the cost of living.
“The shilling on Friday touched an all-time low of Sh120 against the dollar in intraday trading, raising fears it would breach the mark in coming days. The weakened shilling signaled higher cost of imported goods and inflation,” said AIB-AXYS Africa, a leading financial service provider. A weaker shilling means higher cost of debt servicing and higher cost of raw materials for manufacturers.
It also leads to food inflation as Kenya imports most of its food. It also makes transport costs go higher due to higher cost of fuel and also increases operating costs for companies. However, relative to many other countries, the shilling has held on quite well, losing just about 10 per cent per year according to Central Bank of Kenya (CBK) data.
Kenya’s foreign exchange reserves dropped by the East African community threshold of 4.5 months of import to stand at 4.39 months of import cover.
“The usable foreign exchange reserves remained adequate at USD 7,608 million (4.39 months of import cover) as at August 25,” CBK said.
At a time when commodity prices are rising, Kenya lacks commodity exports making it exposed to external inflationary forces.