Kenya shilling slips past 110 mark

The Kenya shilling slipped past another crucial confidence marker on Friday as it breached the Ksh.110 mark in its valuation against the US dollar.

The shilling was quoted at Ksh.110.06 ahead of Friday’s close in comparison to Ksh.109.98 at Thursday’s close.

The unit which has been trading at historical lows in recent weeks has now shed 8.5 per cent of its value since the opening of 2020 with a greater collapse seen during the pandemic.

The weakening of the local unit has been largely attributed to increased dollar demand from merchandize importers as economic activities resume following restrictions.

Further, the depreciation has been linked to weaker inflows of foreign currency receipts as evidenced in the collapse of the Central Bank of Kenya (CBK) usable foreign currency reserves to Ksh935 billion from Ksh.1.02 trillion in July.

This view is however countered by analysts who observe that imports are yet to recover to pre-pandemic levels while foreign currency inflows from remittances and exports have remained largely unchanged with exports for instance growing by 2.8 per cent to October.

Instead, the analysts warn Kenya is staring at a potential currency crisis driven in large part by widened fiscal deficits and higher dollar-denominated external debt servicing costs.

CBK Governor Patrick Njoroge has however clapped back on the allegations slamming both analysts views and headlines in media reporting as he remains cool on the recent shilling volatility.

“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 told a post Monetary Policy Committee (MPC) news conference on Friday.

“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.”

CBK’s defence of its FX regime comes even as players in the financial markets warn of the emergence of the parallel FX market with some commercial banks quoting the local unit significantly above the reserve bank.

The weakening of the unit as describe by Dr. Njoroge is not however unique to Kenya with other major world currencies suffering a similar fate.

For instance, the Zambian Kwacha has shed nearly half of its value against the US dollar with a 49.1 per cent depreciation rate ahead of the Brazilian Real and Turkish Lira at 32.8 and 32.4 per cent respectively.

A weaker shilling is set to raise the cost of import purchases and external debt redemption but has the positive effect of increasing the attractiveness of Kenyan exports in foreign markets.