Kenya shilling drops past Ksh.115 mark against U.S dollar

The Kenyan shilling has slipped past the Ksh.115 mark against the U.S dollar as the local unit continues to set new lows by the day.

The local unit was quoted trading at Ksh.115.05 at the start of trading on Friday having closed Thursday just shy of the mark according to Central Bank of Kenya (CBK) data.

Pressure on the local economy continues to emerge from a stronger dollar relative to other world currencies alongside a widening current account deficit (CAD) whose expansion has been tied to a greater import bill from high fuel prices.

Despite the weak run which has seen the unit shed nearly two per cent in the year to date, the Central Bank of Kenya (CBK) has remained calm insisting the unit remains largely in line with peer currencies in the region.

“The dollar index has appreciated by 3.2 per cent so far in 2022 which is very significant. We have depreciated by about 1.3 per cent and you can see that matches well with the others. We are feeling okay in terms of our operations in the Forex market,” noted CBK Governor Dr. Patrick Njoroge on Wednesday.

At the same time, the reserve bank says ample liquidity remains in the forex market even as the bank hints it is looking out for improper conduct from participants which might skew the operations of the FX market.

“There is FX liquidity in the market and we continue to observe the market so there is proper behaviour as is required in operating these markets,” added Dr. Njoroge.

The comments by the CBK Governor is on the back of sanctions passed on earlier this week to Ecobank Kenya Limited over what the reserve bank termed as irregular FX trading.

The lender has been temporarily suspended from FX trading after what the CBK says was the breach of foreign exchange exposure limits.

Analysts have nevertheless backed up CBK’s view of the shilling’s relative stability and do not see a severe depreciation in the unit at least in the near term.

“Historically, the local currency has been very resilient and stable against the US dollar when you compare it to other currencies in East Africa over the last 10 years, but now we think we are entering a stage where we are going to see an annual depreciation of between three and five per cent,” EFG Hermes Head of Frontier Research Kato Arnold Mukuru.

The local unit is predicted to remain under pressure from cost pressure but should find anchoring from stable core inflation which has stuck well under three per cent over the recent past.