CBK intervenes as Kenyan shilling weakens further

The resurgence of the US dollar and high demand for foreign currency from importers has plunged the Kenyan shilling into four consecutive days of decline in value.

As of Thursday, May 23, commercial banks were quoting the shilling at 132.00/133.00 per US currency, compared to Monday’s closing exchange rate of 131.50/132.50.

Still, the Central Bank of Kenya has intervened to prevent the Kenyan shilling from weakening further against the US dollar, which is now in high demand.

In recent weeks, commercial banks have bought more US dollars from the Central Bank to sell to manufacturers who need to import supplies.

The Central Bank of Kenya

Photo

KO Associates

a report of Reuters revealed that the Central Bank provided support to the shilling by selling US dollars in small amounts to ensure stability.

Despite the quick intervention, experts warned that the intervention would not last because there was still pressure on exchange rates.

“As we approach the end of the month, we see a bit of pressure building up, but we have seen the central bank provide some support,” said one forex trader.

“In general, there is more demand for currencies than supply, but there is no panic buying.”

The shilling has been weakening against the dollar due to high demand for the US currency by commercial banks and importers, including oil importers and manufacturers.

Fuel retailers and manufacturers doing business on the international front have been hit in recent weeks by dollar shortages. A shortage of dollars means that those who demand the dollar have to bid for it at higher prices, which affects exchange rates.

The last resurgence The dollar’s decline against major world currencies has also been attributed to the weakening of the local currency.

A stronger dollar has been blamed on ongoing geopolitical disputes that have increased investor nervousness as dollar inflows have slowed.

The weakening of the shilling comes just a fortnight after experts predicted that the local currency would surely weaken against the scarce dollar.

The Kenyan shilling has remained stable but could weaken in the coming days due to demand from fuel retailers,” the analysts noted.

There are growing fears that further weakening of the shilling could mean a return to more costly debt servicing.

In April this year, Central Bank Governor Kamau Thugge revealed that the country’s debt had been reduced by Sh1 trillion. Initially, Kenya’s debt amounted to 11 trillion shillings.

The debt reduction was attributed to gains made by the local currency, which was ranked as the world’s best-performing currency against the US dollar.

A World Bank report in April ranked the Kenyan shilling as the best currency in sub-Saharan Africa after recording a 20 percent improvement in its performance.

“The Kenyan shilling is the best-performing currency in the subcontinent, registering a 16 percent appreciation so far this year,” the World Bank noted in its report.

The strengthening of the Kenyan shilling was attributed to increased dollar inflows from tea and coffee exports and increased remittances from the diaspora.

The 2014 Eurobond buyback of 310 billion shillings ($2 billion) also contributed greatly to the stability of the Kenyan currency.

A collage of photographs of Central Bank of Kenya Governor Kamau Thugge and shilling notes and coins.

Photo

CBK