Kenyans are likely to pay more for imported goods, fuel and electricity this month as the shilling continues to weaken against the dollar.
The shilling touched a record low against the US dollar yesterday, trading at 109.28 in the mid morning, dropping to 109.25 in the afternoon.
The country heavily depends on finished imported goods and on account of the lower shilling traders will past the extra cost to consumers subsequently pushing up the the cost of living.
Economist Mihr Thakar said the Central bank Covid-19 response strategy to cut banks' cash reserve ratio & slashing the benchmark rate has increased the supply of Kenya shillings in the market thus affecting the value of the dollar.
The apex bank slashed the Cash Reserve Rate (CRR) for the first time since 2012 to 4.25 per cent from 5.25 per cent in a move to boost liquidity.
CBK data show that commercial banks’ excess reserves dropped to Sh9.8 billion last week from Sh10.5 billion the week ended November 7.
This shows that the apex bank released dollars into the market so as to cushion the volatile shilling as the demand for the dollar increased.
“The shilling is under pressure as various lockdowns in Europe which have hit demand for imports coupled with anaemic tourism receipts have prevailed,” said economist Thakar.
He said as the country experiences robust economic recovery & imports three times more than it exports, the higher dollar demand is justified.
Thakar however noted that the downward move is healthy and a boost for exporters, foreign investors and those sending remittances.
The value of the shilling has in the past three months weakened against major currencies as people opt to store wealth in stable papers to cushion against Covid-19 economic turmoil.
In Kenya for instance, rich individuals. seeking a safe haven for their wealth, stockpiled a record Sh45.5 billion in dollars in the three months to May upon the country reporting first covid-19 case
Data by Central Bank of Kenya (CBK) shows that foreign currency bank deposits held by Kenyans rose to Sh671.4 billion, up from Sh625.9 billion in February, one of the largest three-month jumps.
In the week ended November 13 however, the shilling remained relatively stable against major international and regional currencies.
According to the weekly bulletin, it exchanged at Sh109.03 per US dollar on November 12 compared to Sh108.87 per US dollar on November 5.
The country, which lost $1.5 billion the precautionary facility from the International Monetory Fund (IMF) in 2018 has been struggling to keep the shilling afloat.
Globally, the financial markets rallied earlier in the week, following the U.S. election results projecting Joseph Biden as the president-elect.
The markets were propelled even higher by news of a promising coronavirus vaccine.
International oil prices increased during the week on growing hopes that the world’s major producers will hold off on a planned supply increase, coupled with news of disruptions in U.S. oil production in the Gulf of Mexico due to hurricanes.
Murban oil price increased to $44.51 per barrel on November 12 from $41.25 per barrel on November 5.