Shilling hits four-month low on import demand up

The shilling has in June fallen to a four-month low against the greenback pushed by importers’ dollar demand and multinationals paying dividends.

Commercial banks quoted the shilling at an average of 103.65 to the dollar Friday, while the Central Bank indicative rate stood at 103.62 units. It was exchanging at 103.35 to the dollar at the beginning of the month.

This is the lowest the currency has fallen since February 20, when it was exchanging at the similar level of 103.65.

Since the beginning of the year, the currency has depreciated by 1.16 per cent.

Analysts say that the cyclical end-month demand from importers, especially those in the oil sector, has weighed on the currency.

“The Kenyan shilling was seen weakening due to increased dollar demand from oil companies and manufacturers and lack of inflows from the agriculture sector and charities,” said Kingdom Securities in a market report last week.

READ: Kenyan shilling stable, helped by inflows from charities

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Raise concern

A weakening shilling would raise concern at a time when the cost of living has gone up (inflation is at 11.7 per cent), given that Kenya is a net importer of goods.

A more expensive dollar raises the cost of goods coming into the country, which eventually filters down to the consumer.

On the other hand, a weaker shilling helps exporters by raising the value of their sales outside the country, for which payments are made in dollars.

READ: Banks raise forex stocks to Sh240bn in hedging move

The due dates for dividend payments for a number of listed firms fall between mid-June and mid-July, with these companies needing to go into the market to purchase dollars to settle dividend obligations to the foreign investors on their books.

These firms include WPP ScanGroup, #ticker:SCAN BOC Gases, #ticker:BOC Kakuzi, Jubilee Holdings, #ticker:JUB Co-operative Bank, #ticker:COOP Equity Bank, #ticker:EQTY Umeme, and Bamburi.

The Central bank though does hold a substantial amount in foreign reserves at $8.1 billion (Sh840 billion), which can be deployed should there be exchange-rate volatility going forward.

Among regional trading partners, the Uganda shilling is performing better than the shilling against the dollar, appreciating by 0.2 per cent year-to-date.

The Tanzania shilling and the Rwanda franc have depreciated to the dollar by 2.6 per cent and 1.9 per cent respectively.

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