This archive report was first published on 20 July 2020.
As Kenya's economy returns to normal operation, the Kenya Shilling is expected to face intense pressure in the coming days. The Central Bank of Kenya's latest weekly bulletin reveals that the local currency weakened against major international and regional currencies during the week ending July 17th, 2020.
According to the bulletin, the Kenya Shilling exchanged at KSh 107.35 against the US dollar on July 16, compared to KSh 106.96 on July 9th, 2020. This weakening is attributed to the increased demand for dollars by importers, who are now placing fresh orders for raw material imports and paying for them with hard currency.
Professor Gerrishon Ikiara, a development and policy consultant, notes that the demand for US dollars is higher than three months ago, when the economy was on partial lockdown. He attributes this to the resumption of international flights and increased shipping activity at the port of Mombasa.
However, Prof Ikiara also points out that Kenyan exporters have yet to resume the volumes they sold abroad before the COVID-19 period, resulting in weak export earnings and insufficient forex inflows to meet rising demand for dollars.
Experts predict that the Kenya Shilling will remain volatile in the coming weeks, as importers continue to place orders. The horticulture sector, a key forex earner, has resumed exports to key European markets, but is yet to reach its previous levels.
Reginald Kadzutu, Head of Retail at Zamara, attributes the weakening of the local currency to reduced forex inflows, an oversupply of Kenya Shilling, and no equivalent demand for the local unit. The IMF-funded forex reserves have also placed the Kenya Shilling at a vulnerable position.
Felix Ochieng, a dealer at Faida Investment Bank, notes that there is a foreign outflow from most of our capital markets, which is likely to slow down as the week begins.
