The Kenya shilling weakened sharply against the US dollar, hitting a fresh low of 129. The depreciation has partly been attributable to increased dollar demand from importers.
“The Kenya shilling remained stable against major international and regional currencies during the week ending March 9,” the Central Bank of Kenya said in its Weekly Bulletin.
“It exchanged at KSh 128.59 per US dollar on March 9, compared to KSh 127.29 per US dollar on March 2.”
On a year-to-date, the shilling has ceded 3.32% compared to a 0.61 per cent depreciation during the same period in 2022.
“Further shilling weakness is expected as dislocations in local US dollar demand-supply persist. In the coming week, the shilling could weaken by about 120-140 cents against its US counterpart,” notes NCBA Research.
Inflation
In addition, Renaissance Capital projects that the shilling will close the month at 130 as the US dollar continues to strengthen.
“The dollar is expected to continue with its charm offensive in the coming months, a move likely to further hurt weak currencies and pile pressure on already high inflation,” Renaissance Capital notes.
In February, headline inflation accelerated to 9.2 per cent from 9.0 per cent observed in January, attributable to increasing food and fuel prices amidst the persistence of supply-chain disruptions and a drawdown on domestic supply.
Consequently, annual food inflation rose to 13.3 per cent from 12.8 per cent in January. This was driven by increased prices of various commodities such as wheat flour-white, fortified maize flour, cabbages, fresh cream and sugar that rose by 29.4%, 21.5%, 20.2%, 19.5% and 17.0%, respectively.
A weak shilling increases the cost of imports as more local currency units are now needed to exchange for the hard currencies used in the international markets.
FX reserve position
NCBA Research further discloses that emerging markets and developing economies (EMDEs) like Kenya, with a high debt burden and elevated external debt servicing costs, should continue undermining the sovereign’s foreign exchange (FX) reserve position.
According to the CBK, the usable foreign exchange reserves remained adequate at USD 6,566 million (3.67 months of import cover) as at March 9.
