Inside Politics

Weak shilling to stabilise on exports surge

Tuesday, October 26th, 2021 00:00 |
US Dollar. Photo/Courtesy

The Kenyan shilling traded weaker yesterday on continued dollar shortages as traders monitor Central Bank of Kenya (CBK) to gauge if it intends to ease the situation by selling forex.

Commercial banks posted the shilling at 111.05/25, compared with Friday’s closing rate of 111.00/20.

Bloomberg data stream shows the Kenya shilling was among the 10 poorly performing currencies in Africa in the 12-months to October 2021.

The data shows that the Kenya shilling  lost 1.7 per cent year to date against the US dollar, which is modest given Kenya’s record low monetary policy rate.

Most of the devaluation arose from the dry up foreign inflows especially from tourism and conferences.

The currency has however stabilised and is trading around Sh111 to the dollar.

“The Kenya Shilling remained stable against major international and regional currencies during the week ending October 21.

It exchanged at Sh 111.02 per US dollar on October 21, compared to Sh110.81 per US dollar in October,” says CBK in its latest bulletin.

Currency to strengthen

The shilling however performed better than the Ethiopian Birr which lost 18 per cent of its value perhaps due to the conflict in the Tigray regions.

CBK expects the currency to strengthen since the balance of payment has been improving from as low as 7 per cent five yeas ago to 5 per cent.

According to CBK governor Dr. Patrick Njoroge, the currency is expected to be stable this year due to the improving balance of payments.

“We do not expect a lot of pressures on the exchange rate given that the balance of payment is improving and our exports are also recovering,” notes Njoroge on the latest CEOs market survey. 

The shilling is currently trading around Sh111 per one US dollar according to the central bank, has exacerbated pain at the pump as oil prices and other imports become more expensive than they would have otherwise been.

The week shilling is also hurting Kenyans by increasing the cost of electricity as Kenya Power pays many of the Independent Power Producers in dollars and Euros.

Other poor performers alongside Kenya include the Nigeria naira, Ghana’s Cedi and the Malawian kwacha.

The best performing currencies include the Zambian Kwacha which is up 23 percent year todate. The Mozambique New Metical is also 16 percent up.

The Angolan kwanza and Guinean Franc were on a winning streak in the last 12-months.

Economic recovery

The economic recovery is expected to spur recovery of exports with the expected increase in interest rates due to rising inflation being a major factor that will pull up the currency.

The key reason for the shilling depreciation has been the aggressive easing by the central bank that saw policy interest rates drop to 7 per cent, one of the lowest in Africa.

President Uhuru Kenyatta Wednesday unveiled a Sh25 billion economic stimulus package meant to jump-start the economy,and create jobs.

It seeks to widen the market and offer better produce prices to tea, coffee, sugar and livestock farming sectors which are critical in putting money in peoples’ pockets.

Coronavirus also saw a reduction of imports since last year helping to cut pressure on the country’s balance of payments.

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