Shilling Declines to a Historic Low Against US Dollar

Today, the Kenyan shilling had its largest one-unit decline in the previous four months as it hit a new low against the US dollar.

Google currency showed the local currency at 128 units against the dollar, up from 127.29 the day before.

The shilling has lost 13% of its value versus the dollar over the past two decades, which has increased living expenses as importers struggle to assemble hard money.

The shilling is expected to end the month at 130, according to Renaissance Capital, as the US dollar gains momentum. It has increased significantly by 17% over the last 12 months.

“The dollar is expected to continue with its charm offensive in the coming months, a move likely to further hurt weak currencies, piling pressure on already high inflation,” the financial service advisory firm said. 

In Kenya, it is predicted that inflation will rise over the following two months before declining due to anticipated prolonged rains.

The cost of living increased to 9.2% in February as a result of rising food prices and the depreciating shilling, which combined to put pressure on households. Some food expenditures increased by 11 percent from January to February.

Concerns about a continuing scarcity have been expressed by importers who are currently paying between 130 and 138 for a dollar, about 10 units more than the official Central Bank rates, transferring the additional import cost onto end users.

Kenya’s cushion against external shocks is currently weakened because the reserves do not meet the legal requirement of being equivalent to four months’ worth of import cover.

“The usable foreign exchange reserves remained adequate at Sh865.9 billion ($6,875 million) which is 3.84 months of import cover as of February ninth,” the CBK said in its weekly bulletin.

Since the nation plans to pay interest on a number of external loans in the next two weeks, they are likely to fall even further.

The U.S. Federal Reserve meeting minutes revealed that officials are committed to adopting a slower pace of interest-rate increases to contain stubbornly rising inflation, which led to a further increase in the dollar’s strength on Friday.

Sterling dropped 0.58 percent to $1.2036 as the dollar climbed in late trading, while the euro dropped 0.44 percent to $1.06.

The dollar index increased by 0.40 percent to 104.57, retreating off the day’s high of 104.59.