On Monday, the Kenyan shilling dropped to a new all-time low against the US dollar, signaling an increase in the cost of living amid market dollar scarcity.
The Kenya shilling was quoted by the Central Bank of Kenya (CBK) at 129.24 per dollar yesterday, down from 128.59 last week.
This is coming after the government’s debt repayment, low export earnings, and the dividend-paying season for listed companies, which traditionally move billions of dollars abroad to pay foreign shareholders.
Banks and forex bureaus, on the other hand, are selling the dollar at around Sh143 due to rationing, which has harmed manufacturers and importers.
The CBK has insisted on holding on to depleting forex reserves, as the country navigates external debt repayment obligations. The country’s reserves dropped to $6.56 billion (Sh849 billion) last week, from $6.61 (Sh854.7 billion) the previous week, which is 3.67 months of import cover.
The shilling has dropped 13% against the dollar in total, the most in two decades, raising the cost of living as importers struggle to consolidate hard currency. Importers have been forced to pass on the increased import bill to consumers, resulting in high inflation.
Macdonald Obudho, the director of Kenya’s National Bureau of Statistics, said, “the rise in inflation was largely due to increase in prices of commodities under food and non-alcoholic beverages (13.3%); housing, water, electricity, gas, and other fuels (7.6%); and transport (12.9%) between February 2022 and February 2023.”
Prices for commodities classified as furnishings, household equipment, and routine household maintenance increased by 8.8 percent during the period.
The shilling is expected to remain weak in the medium term, owing to persistent forex demand from importers as well as the impact of rising inflation.
According to AZA Finance, a trading solutions provider, dry weather conditions are affecting vegetable crops, driving up prices and raising the cost of living.
External debt repayment obligations are also contributing to broader forex scarcity, which has resulted in fuel shortages as importers are unable to obtain enough dollars to replenish their stocks, according to the report.
Terry Karanja, a senior treasury associate at AZA Finance, stated, “with the lack of rain likely to impact harvests and push inflation higher, we expect the shilling to continue depreciating in the near term.”