Ksh breaches 140 against the dollar with a continued downward spiral despite state interventions
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Ksh continues the downward trajectory breaching 40 against the US dollar, losing 13.5 percent of its value since the beginning of the year
Ksh continues the downward trajectory breaching 40 against the US dollar, losing 13.5 percent of its value since the beginning of the year.
The Kenyan shilling has traded above the 140-unit threshold against the US dollar, despite government attempts to arrest its slide.
The local currency’s continued decline, which has caused it to lose 13.5 percent of its value since the start of the year, has defied both a government-backed agreement to import fuel on credit and a CBK foreign exchange code that came with strict penalties for dealers who were caught manipulating the forex market.
According to official printed exchange rates, the shilling initially surpassed the 140-unit threshold last Friday. Punished by a US dollar that was bullish across the board on Monday, the shilling then continued its downward trend.
The decline in value indicates the widening gap between supply and demand, which is putting increasing pressure on the rising cost of living issue in an economy that is heavily dependent on imports.
An analysis of the official printed exchange rate shows the shilling has depreciated about 7.21 percent since the CBK, the regulator, enforced a code it pledged would ensure the integrity and effective functioning of the relatively volatile forex market.
The currency has further shed 3.93 percent of its value since April 18 when the first consignment of petroleum products procured on a six-month credit from Saudi Arabia and the United Arab Emirates landed at the Port of Mombasa.
President William Ruto had backed the government-government import deal, which enables oil marketers to buy fuel in shillings, alongside the regulator’s action, to ease demand for the dollar and prop up the local currency.
The code, enforced on March 22, prohibits banks from engaging in trading practices, quoting prices or making transactions with the intention of manipulating price movements or disrupting the functioning of the market.
Continued weakening of the shilling makes imports costlier and piles pressure on the cost of living due to the country’s reliance on foreign markets for essential supplies such as fuel and materials for factories.
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Consumers are already feeling the impact of the depreciating shilling after purchasing prices rose the fastest in more than half a year. Firms polled in the composite Purchasing Managers Index (PMI) for May linked the increased consumer prices partly to the weakening shilling, which pushed up input prices at the sharpest pace since January 2014.
“Input prices are now at their highest since the survey began in 2014 as the KES [shilling] depreciated further, which increased import costs,” Mulalo Madula, an economist with South African-based Standard Bank, the parent firm of Stanbic Bank, wrote in the PMI on June 6.
“This caused the greatest increase in output prices in seven months — but it was less than the concomitant increase in input prices.”
This is happening after Kenya’s foreign exchange reserves rose above the desired four months equivalent of import cover for the first time in six months after the World Bank wired $1 billion loan.
The reserves hit $7.459 billion (about Sh1.04 trillion where $1 is equivalent to KSh 140.04) last Thursday, enough to cater for the country’s import needs for about 4.11 months, according to the CBK.
Forex reserves are largely tapped to pay for the importation of critical government goods such as drugs as well as repay external debt.
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