Shilling nears 100 level to the dollar after hitting new low

The shilling has been under pressure due to falling revenues from tourism, tea and horticulture. PHOTO | FILE 

By NEVILLE OTUKI, notuki@ke.nationmedia.com

The shilling on Monday hit a new low against the dollar amid talk that it could reach the psychological Sh100 mark in what is set to increase the cost of imported goods.

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Commercial banks quoted the currency at 98.60/70 to the dollar – a new low since October 2011. The local unit closed at 98.40 in last Friday’s trading.

The Central Bank of Kenya has sold dollars worth billions of shillings in recent months and raised its benchmark lending rate from 8.5 to 10 per cent in June to support the currency.

“There has been sustained demand especially from the energy sector, so it’s a continuation of the theme,” a senior trader at a top commercial bank was quoted by Reuters, adding that the currency could hit the 100 units to the dollar level by the end of the week.

“There is heavy corporate demand and the current account deficit is a mess. So unless that is addressed, the currency will continue weakening,” the trader said.

The shilling has been under pressure since the beginning of the year due to falling revenues from tourism, tea and horticulture – key foreign exchange earners – amid concerns over the rising import bill.

READ: Import costs set to rise as shilling hits new three-year low

The weakening local unit has raised prospects of higher living costs in a country that largely depends on imports for its consumer and capital goods, especially fuel and industrial raw materials.

Tourism, once the highest foreign exchange earner, has borne the brunt of terror attacks which has prompted Western countries to issue travel alerts.

This has cut foreign tourist arrivals over the past year and led to the closure of more than 40 hotels at the Coast due to low bed occupancy.

Visitor numbers fell to 284,313 between January and May from 381,278 in a similar period last year, a 25.4 per cent drop. Effects of the strengthening dollar have already been felt by motorists after the energy regulator this month raised fuel prices to the highest level this year.

The Energy Regulatory Commission also increased the forex adjustment levy in electricity bills to the highest level since December 2013, reflecting the impact of the weakening shilling on household budgets.

The forex levy comprises expenses incurred in foreign currency by power generators such as KenGen, independent producers and Kenya Power.

Reduced dollar inflows from underperforming key sectors comes against a rising import bill, negatively impacting the country’s balance of trade.

Official data says the current account deficit had increased by 30.2 per cent to Sh536.1 billion in 2014.