The Kenyan shilling continued to weaken against major currencies on Monday, hitting its lowest point this year yesterday in the economy’s latest nightmare.
Official data from the Central Bank of Kenya (CBK) shows the local currency traded on average at 110.16 shillings for every US dollar, which promises to make imports more expensive in the coming days.
Kenya is a net importer and a depreciation of the shilling has the net effect of raising the prices of goods, including electricity and fuel.
The shilling has weakened steadily over the past few weeks, dropping from Sh107.9 in July to Sh109.7 in late August. In September, the national currency lost further ground to cross the new psychological point Sh110 and it appeared to fall further as importers increased demand for the greenback.
In addition to soaring import costs, a lower shilling has a direct impact on Kenya’s foreign currency denominated loans, as the country pays a large portion of its loans in dollars.
“For every shilling that weakens against the dollar, Kenya’s external debt increases by 40 billion shillings according to our latest external debt figures which stand at 4 trillion shillings,” Mr. Tony Watima, economist.
But on the other hand, exporters will smile right down to the bank as a weakened shilling makes exported goods cheaper and therefore more competitive in the world market.
Mr. Watima noted that inflation is likely to rise due to the intermediate raw materials that Kenya imports for manufacturing.
âThe other impact is that a low Kenyan shilling means our debt position changes,â Watima said.
Kenya’s risk of debt distress rose from moderate to high as the country continued its borrowing frenzy to finance expensive infrastructure projects and deal with a growing budget deficit.
Aggregate debt reached 7.71 trillion shillings in June and is expected to reach 8.75 trillion shillings by the end of the fiscal year, to just 250 billion shillings before reaching the statutory debt ceiling of 9 trillion shillings, which will trigger a new National decision The Treasury must seek parliamentary approval to raise the debt ceiling.
The weakening Kenyan shilling has been partly attributed to increased demand for dollars from importers alongside continued excess liquidity in financial markets.
The Central Bank of Kenya has aggressively defended the national currency in recent weeks by deploying so-called open market operations (OMOs) to mitigate any exchange rate volatility through the sale of repurchase agreements ( rest).
At the same time, the reserve bank sold dollars from its reserve pool to equalize the unmatched demand for dollars in the financial markets.
The CBK indicates in its weekly bulletin that it has enough dollars to deal with imports at $ 9,619 million or 5.88 months of import coverage as of September 16.