Shilling weakens to three-month low as traders seek dollars

The shilling Tuesday weakened to a three-month low against the US dollar, mainly on increased demand of the foreign currency by importers in second week of government relaxing measures taken to contain the spread of Covid-19.

The Kenyan currency closed the day averaging 107.25 units against the dollar compared with 107.15 units at the close of trading Monday.

This is the weakest level since April 4 when it as at 107.27 and marked the third straight day of weakening despite Central Bank of Kenya (CBK) maintaining dollar import cover of over five months.

Currency traders said the shilling was under pressure from oil and merchandise importers who are buying dollars to increase stock levels following the easing of movement restrictions.

“The Kenyan shilling lost ground on Tuesday due to dollar demand from players in the energy sector and importers of merchandise,” news agency Reuters said, quoting currency traders.

Traders expect the gradual reopening of the economy to boost demand of commodities such as fuel and raw materials for many manufacturing firms.

This is especially so after the State lifted cessation of movement in and out of the Nairobi Metropolitan Area, Mombasa and Mandera counties and announced resumption of local air transport from today.

Standard Gauge Railway train resumed services on Monday, with inter-county road transport also gradually picking up.

Airlines such as Jambojet, a subsidiary of Kenya Airways #ticker:KQ , confirmed that it would resume local flights today.

The shilling returned to 107 units to the dollar last Friday, marking the first time since May 28, despite foreign exchange reserves holding steady.

Forex reserves last week dropped from $9.717 million (Sh1.04 billion) to $9.704 million (1.039 billion) or 5.83 months of import cover, CBK data showed.

This is considered adequate since the CBK endeavours to have reserves of at least 4.5 months import cover.

The shilling had weakened to an all-time low of 107.29 units to the dollar on April 30– about one and half a month since Covid-19 case was reported in Kenya– before strengthening to 106 units eight trading days later.

Policy-makers are keeping a close eye on Kenya’s Covid-19 case load with President Uhuru Kenyatta warning that the country will impose stiffer measures should the situation worsen.

The number of Covid-19 infections yesterday rose by 497 to take Kenya’s total case load to 10,791. The virus has so far killed 202 people while 3,017 have recovered.