Kenya: High dollar demand sends shilling to new all-time low

The shilling has weakened further in the past week due to higher dollar demand from importers, trading at a new all-time low of 113.51 units to the dollar yesterday compared to 113.23 on January 10.

Traders said there has been broad demand for dollars in the market, which has outweighed supply from agro commodity exports and diaspora remittances.

Large dollar users have also been holding on to their stock of hard currency, fearful of the shilling weakening further in coming days, which would mean a higher cost if they were to try and rebuild their positions down the road.

The shilling has been ceding ground to the dollar consistently since last September, although it has avoided volatility with the market being aware of the Central Bank of Kenya’s (CBK) significant war chest of dollars to iron out any spikes in movement.

In the past week, there was little movement in the forex reserves, which indicated that the CBK hardly intervened in the forex market.

“The usable foreign exchange reserves remained adequate at $8.764 billion/Sh994.8 billion (5.36 months of import cover) as at January 13,” said CBK in its weekly bulletin.

The reserves stood at $8.765 billion (Sh994.9 billion) on January 6.

Going forward, traders said the Central Bank reserves should be adequate to offer the shilling support at the current levels, even though there is concern over rising oil prices which might widen the import bill. Brent Crude was trading at a three month high of $85.78 (Sh9,736) per barrel yesterday.

Diaspora remittances have, however, offered a counterweight to the rising import demand for dollars, with the inflows hitting a new monthly record of $350.6 million (Sh39.8 billion) in December 2021.