The Kenyan shilling has remained in a free fall as it crosses a new confidence marker to trade past Ksh.111 mark against the US dollar.
The local unit was quoted at Ksh.111.13 ahead of Thursday’s trading close in contrast to Ksh.110.67 on Wednesday evening.
The shilling’s weakening continues to be tied to increased demand for dollars following the ease of COVID-19 restrictions along with weaker foreign currency receipts from the pandemic hit on exports and foreign direct investments.
Since the beginning of the year, the local unit has already shed 9.7 per cent of its value against the green buck even as it sees a greater weakening in other leading world currencies such as the Euro and the British Pound.
At the start of the year, the shilling hovered around the Ksh.102 mark against the dollar while it traded at Ksh.113.56 against the Euro in contrast to Ksh.133.24 on Thursday.
Even with the significant weakening, questions have emerged over the true value of the local unit as banking sector analysts warn of the appearance of cracks in the foreign currency interbank market.
According to the analysts, many of whom have opted to remain discrete in fear of backlash from the banking sector regulator, there is a widening margin between the official Central Bank of Kenya (CBK) USD rate and that executable between banks (interbank).
While speaking at a post Monetary Policy Committee (MPC) news conference on Friday, CBK Governor Patrick Njoroge remained relax on the direction of the unit even as he slammed both analysts and media reporting on the depreciation of the shilling.
“If you would compare the shilling’s depreciation to other major currencies, Kenya is more or less in the middle. It’s worth appreciating what is behind this,” he said.
“We are true to our policy on the exchange rate. We have a flexible regime and don’t have a direction or level in mind. We allow this to be determined in the market, the only thing we do is minimize volatility as it poses significant financial stability risks.”
A weaker local unit is expected to lead to higher costs for imports including fuel and motor vehicles while consumer bills such as electricity are set to climb on higher FX adjustment costs.
At the same time, the government is expected to run up to higher external debt redemption costs with nearly 70 per cent of Kenya’s debt owned to foreign creditors being designated in US dollar terms.
The weakening of the Kenyan shilling is not however an isolated case as other major African currencies including the South African rand and Nigerian Naira marking similar depreciations this year.
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