The Kenya shilling on Monday fell to trade at 106 against the US dollar, close to its all-time low of 107, raising prospects of high consumer prices given the country’s overreliance on imports.
The currency, which has now lost 16 per cent against the US dollar in 2015, is reeling under the weight of a rising import bill and a looming interest rate hike by the US Federal Reserve Bank.
Kenya’s export base is drying up due to low exports and a struggling tourism sector that is yet to recover from the effects of attacks by Somalia-based Al-Shabaab militant group.
The Central Bank of Kenya has in the last few weeks been very active in its open market operations, mopping up the shilling’s liquidity, driving the interbank rates up to 26 per cent.
HEDGE AGAINST THE DOLLAR
The government has recently taken a back seat and even said it intends to hedge its activities against the strong dollar, meaning that the State won’t be doing much to shield consumers from the high import prices.
Kenya imports food items ranging from wheat, maize and sugar, leaving it exposed to external shocks.
Kenya’s current account deficit — the difference between foreign currency inflows and outflows — increased by 22.7 per cent to Sh623 billion in the year.
Kenya’s infant manufacturing sector has been seen as the main reason why the currency has taken a beating.
