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Kenya: Shilling falls to new low as food imports fuel demand for dollar

Tuesday, August 09, 2011

The Kenya shilling touched a fresh low against the dollar on Monday, exchanging at Sh93 in what market dealers attributed to panic buying.

The local currency traded to a high of Sh93.60 yesterday as importers across the board rushed in to shore up their dollar positions.

This strained the shilling to new lows since the demand was not supported by similar aggression on the supply side.

“There was a lot of panic buying in the market and this saw the shilling weaken further from Sh92 zone it had been at last week. The demand was, however, not measured up by enough inflows of the dollar into the market,” a dealer at African Banking Corporation (ABC) bank, Mr Julius Kiriinya, told the Nation on phone.

By close of the day, the home currency was trading at Sh93.30 against the dollar, on the basis of Central Bank of Kenya’s comments.

Banks exposure

CBK had indicated that they would be cutting on commercial banks exposure so as to strengthen the shilling.

Demand for the dollar has been building up over the last three weeks as a number of aid agencies based in Kenya moved to import relief food and medical supplies.

The items are meant for hunger and famine ravaged parts of Northern Kenya and neighbouring Somalia.

Besides these, cereal millers in the country have also been importing maize under a special duty waiver from the government.

Additionally, the demand has also been high in the energy sector where oil-marketing firms move in to import the country’s petroleum needs every month. The imports are sourced out of a monthly tendering system supervised by the Ministry of Energy.

Last week, signs of the shilling weakening further started showing when it exchanged at a new low of Sh92.35. The pressure on it sustained further on Friday when it closed the week at a low of Sh92.80.

The current position of the shilling has seen it rank among the worst performing currencies in the world.

Year to date, it is estimated to have lost significantly to the dollar with the figure placed at about 15.5 per cent.

However, the weakening is not unique to Kenya as international turbulence, especially in the Euro zone and the US (debt ceiling) have been noted as factors in the stretch.

Source: Daily Nation