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The shilling weakens further amid rising demand for dollars

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Currencies

The shilling weakens further amid rising demand for dollars


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A merchant counting money. FILE PHOTO | NMG

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Summary

  • The shilling lost more ground to the dollar on Wednesday, trading at a new low of 112.38 units amid the end of the month in demand for dollars from importers, even as supply remained low.
  • It has lost value against the dollar in each of the last 42 trading sessions, prompting concerns about rising household inflation ahead of the holiday season, which demands financial finance.

The shilling lost more ground to the dollar on Wednesday, trading at a new low of 112.38 units amid the end of the month in demand for dollars from importers, even as supply remained low.

It has lost value against the dollar in each of the last 42 trading sessions, prompting concerns about rising household inflation ahead of the holiday season, which demands financial finance.

Last month, inflation stood at 6.45 percent, after falling from 6.91 percent in September.

The shilling opened yesterday at an average of 112.35 per dollar, before depreciating slightly in the price of the day as has been the case in the last two months.

Traders said those with dollars are reluctant to loosen their positions due to concerns about further depreciation, limiting the supply of dollars that would ease pressure on the local currency.

“Importers are looking for dollars to settle month-end obligations and are also posting higher orders ahead of the holiday season,” said a trader.

The shilling has come under pressure following the reopening of the economy last month when the Covid-induced overnight curfew was lifted, and companies reported growing demand for goods that has translated into higher demand for dollars from importers.

Demand for consumer goods has risen now that there is optimism about the recovery of the economy, which expanded 10.1 percent in the second quarter of the year. Consumers had been reluctant to spend during the worst months of Covid-19 due to uncertainty about jobs and income.

Since Kenya is highly dependent on imports to meet demand for capital and consumer goods, a weaker currency tends to have a pronounced effect on selling prices.

Kenyans spent Sh1.53 trillion on imports in the nine months to September, a 28 percent increase from the Sh1.2 trillion import bill reported for the corresponding period last year.

However, foreign exchange inflows from diaspora remittances and agricultural exports have helped prop up the shilling, and tourism receipts are also expected to rebound now that the economy is fully reopening.

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