Shilling slides to 97.50 against dollar, dealers expect pressure

Increasing demand for the US dollar has seen the shilling weaken to three-and-a-half-year low on Friday, with forex dealers expecting pressure on the local currency to continue. PHOTO | FILE  NATION MEDIA GROUP

In Summary

• Foreign exchange dealers said the shilling had come under renewed pressure owing to the growing demand for the greenback by importers seeking to meet their end month obligations.
• Insecurity challenges facing the tourism sector have led to decline in forex inflows. Earnings from the tea sector — Kenya’s largest foreign exchange earner — have been on the decline thanks to low prices of the commodity in the international market.

Increasing demand for the US dollar has seen the shilling weaken to three-and-a-half-year low on Friday, with forex dealers expecting pressure on the local currency to continue.

At the close of trading Friday, commercial banks quoted the shilling at 97.35/97.45 to the dollar, compared to 97.00/97.10 at the close of trading on Thursday.

Foreign exchange dealers said the shilling had come under renewed pressure owing to the growing demand for the greenback by importers seeking to meet their end month obligations.

“The shilling has been on a gradual slip with demand outweighing supply,” Mr Joshua Anene, a senior forex dealer at Commercial Bank of Africa told Nation.

Equatorial Commercial Bank head of treasury, Mr Benard Omenda, attributes the shilling’s slide on the structural challenges affecting Kenya’s economy at the moment.

The country continues to experience widening current account deficit arising from dwindling forex inflows in the wake of rising imports associated with the purchase of capital goods such as machinery for use in infrastructure development.

DECLINE IN INFLOWS

Insecurity challenges facing the tourism sector have led to decline in forex inflows. Earnings from the tea sector — Kenya’s largest foreign exchange earner — have been on the decline thanks to low prices of the commodity in the international market.

The price of crude oil in the global market is also on the rebound, albeit gradually. This is further expected to add to the country’s growing import bill.

“When compounded with issues such as corruption, insecurity and a weak economy, these factors send a strong signal to foreign investors, who tend to exit the market leading to a decline in forex inflows,” Mr Omenda said, adding, “there’s going to be a lot of pressure now on the shilling”.

This year, the shilling has weakened by about seven per cent to the dollar with analysts projecting that it could potentially touch the 100-mark against the greenback on sustained pressure.

Earlier this month, the Central Bank of Kenya (CBK), which is yet to have a substantive governor, held the benchmark lending rate at 8.5 per cent. Analysts had expected the policy rate to be raised to cushion the shilling from weakening further against the dollar.

President Uhuru Kenyatta is yet to name a replacement for former CBK governor, Prof Njuguna Ndung’u, 34 days after the Public Service Commission handed over the names of successful candidates to be considered for the positions of governor, deputy governors and chairman at the regulator.