Zachary Ochuodho @zachuodho
The shilling weakened against the US dollar yesterday, touching a new mean of 103 on the back of huge balance of payment, high deficit and increased demand from importers.
It last touched the low of 103 units to the dollar early this month due to high dollar demand.
Central Bank of Kenya (CBK) Indicative Exchange Rates indicate that the shilling had closed trading session at an average of 103.0278 compared to 102.9542 it exchanged on Monday. Whereas some traders attributed the development to the rising demand pressures mainly from oil importers, analysts argued that the slide was mainly due to huge balance of payment and high budget deficit.
John Kirimi, Sterling Capital director explained that apart from the huge balance of payment, increased demand for the greenback from importers also had an impact of the slide.
He said that slow economic growth of economy and high growth of imports mainly due to maize shortage in the country may have also contributed to the slide.
Chief Economist at Mentoria Economics Kenneth Gichiga said what is happening to the shilling is an indication of excess liquidity in the market driven by the upcoming currency demonetisation. “Liquidity is the cash available in the system. It can be surplus, neutral or deficit. Higher quantity helps reduce short-term interest rates, while low availability can push up rates without any CBK policy action,” he said.
Caleb Mugendi, Assistant head of investments at Cytonn, said the Kenya shilling has been depreciating steadily and that last week, for instance, it slid by 0.3 per cent against the dollar to close at Sh102.9, from Sh102.6 noted the previous week due to increased dollar demand from oil and merchandise importers during the week.