More consumer pain as the shilling hits new historic low – Business Daily
Shoppers at a supermarket at the Jambo Matt Supermarket in Mombasa. PHOTO | KEVIN ODIT | NMG
Kenyans are staring at more expensive household budgets after the shilling hit a historic low against the dollar, setting the stage for higher costs of imported goods and inflation.
The Central Bank of Kenya (CBK) data shows the Kenyan shilling exchanged at an average of 123.05 on Monday, whose impact will be felt through imported goods and services, electricity and debt servicing distress.
The continued depreciation of the local currency, which has taken the shilling’s year-to-date losses against the dollar to almost 9 per cent, is expected to push up living costs and hurt households that are already grappling with high fuel and food prices.
Main imports into the country include petroleum products, machinery, medicine, vegetable oil, pharmaceuticals, cars, wheat and clothing.
A volatile shilling means importers will be spending more on bringing in goods such as raw materials for factories thereby raising the cost of inputs for firms which in turn pass the additional expenses to consumers.
In October, the Pan-African private sector trade and investment committee (PAFTRAC) ranked Kenya as the second most preferred export destination on the continent signalling the country’s growing reliance on imports.
As of 2021, Kenya’s imports of goods and services were 17.7 per cent of its gross domestic product (GDP).
The depreciation of the shilling is also set to increase electricity prices through higher forex levies on power bills, further reflecting the impact of the strengthening dollar on household budgets.
READ: Shilling for first time hits Sh116 against the dollar
On the government front, a weakened shilling portends more woes with regard to foreign debt repayment obligations.
Last week, Controller of Budget Margaret Nyakang’o disclosed that she approved an extra Sh5.4 billion to service external debt owing to forex fluctuations.
“The Kenyan currency has been depreciating against other currencies, leading to the growth of the country’s external debt,” said Nyakang’o in a report.
The Kenyan currency has been on the back foot since mid-May last year when it stood at Sh106.40 on the combination of weak inflows and strong demand for the greenback across sectors.
In its weekly bulleting that outlines the country’s monetary and financial developments, the CBK announced on Friday that it had fallen short of the required four-month import cover in usable foreign exchange reserves.
The amount stood at $7,075 million which the apex bank quantified as cover for 3.96 months.
The banking industry regulator has however continued to underplay the level of depreciation and disputed claims on the constraints in dollar supply.
“The Kenya Shilling remained stable against major international and regional currencies during the week ending December 15,” said CBK on Friday.
The new round of shilling loss to the dollar coincides with the conflict between Russia and Ukraine that has seen the rise of global concerns about oil inflationary pressures.
Analysts attribute the trend to among other factors, portfolio outflows by foreign investors and defiant strengthening of the greenback.
ALSO READ: How the purchasing power of the shilling fell 45pc under Uhuru
“The issue for us is not the price of the dollar units but their scarcity. It’s not that the Kenyan shilling is weakening, it is the dollar that has continued to gain strength and this is affecting almost all other global currencies,” observes Muathi Kilonzo, the head of forex trading brokerage firm EFG Hermes Kenya.
Already, there are fears in the market that the new dip will cause panic buying of the dollars at banks and forex bureaus and hoarding of dollars in a move that will worsen the crisis.
Exporters of agricultural products such as tea, coffee and horticulture who are largely paid in dollars are however set to benefit from the weakening of the Kenyan currency as they will end up earning more.
Kenyans receiving money from relatives abroad are also counting forex gains on the greenback which they exchange for shillings before spending locally.
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