Kenya shilling slides past 95 units to US dollar

Kenya: The steady weakening of the shilling continued yesterday, propelled by a slight increase in dollar demand from the energy sector.

The shilling has lost 4.8 per cent of its value against the dollar this year, weighed down by a gaping current account deficit and a firmer US dollar. A spate of militant attacks have hobbled Kenya’s key tourism industry, a major source of foreign exchange, while uneven rains have hurt the horticulture sector.

At the opening of business yesterday, commercial banks quoted the shilling at 95.10/20 to the dollar, compared to 95.05/15 at Tuesday’s close, its lowest point since November 2011.

Corporate demand for dollars across the board, but especially from energy firms, has “added fuel to the flames”, said Chris Muiga, a trader at the National Bank of Kenya, adding that the currency could hit the 98 level by June.

“There are structural gaps in the economy that can’t be addressed in the short term,” he said. Commercial Bank of Africa Head of trading Duncan Kinuthia said further weakening could be expected after the shilling passed the technical support level of 95.0 on Tuesday.

“I don’t see a favourable outlook,” he said. Inflation rose to 7.08 per cent last month, its highest since August, adding to pressure on the shilling. Central Bank of Kenya intervened three times last month, selling dollars to prop up the local currency and check the slide.

The banking sector regulator said it plans to mop up Sh8 billion in excess liquidity from the money market using repurchase agreements and term auction deposits. Mopping up liquidity makes it costlier to hold dollars, which in turn lends support to the shilling. The shilling’s continued slide against major world currencies, signals a looming rise in the cost of living.

Though a weaker shilling make exports more affordable, analysts warn that over-reliance on imports means the economy could wipe out any benefits the importers may get from a weaker shilling, leaving consumers in a worse position.