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Kenyan households are staring at an even higher cost of living this month as the shilling continues on a free fall against the dollar, hitting imports and local companies’ operations.
The local currency on Wednesday weakened further to a low of Sh141. 216 to a unit of the dollar, Central Bank of Kenya (CBK) data shows.
Year-to-date, the shilling has shed more than 13 per cent of its value from the Sh124.49 it averaged against the dollar in January.
It crossed the 140 mark last month with analysts predicting it could hit 145 by the end of August, mainly on high federal reserve rates, with benchmark interest rate seen to go up later this month to a 5.25 per cent-5.5 per cent.
The US Central Bank has been using rate hikes as among measures to tame high inflation.
The Kenyan shilling has been on a back foot since mid-2018 when it stood at 101.29, even as CBK maintains the local currency remains stable.
“The Kenya shilling remained relatively stable against major international and regional currencies during the week ending July 6,” CBK says in a bulletin.
With Kenya a net importer, a weak shilling means local traders and manufacturers are spending more to secure dollars to make payments in international trade, costs that are traditionally passed to consumers.
According to the Kenya Association of Manufacturers (KAM), local industries have no option but to pass extra costs to retailers and ultimately consumers of the products.
Banks have been asking for more than Sh142 for a dollar, way above the Central Bank of Kenya’s average, rates that are expected to go further up as the shilling falls.
Petroleum products are among Kenya’s key imports and stand to be affected by a weak shilling, with high prices having multiplier effects in the transport sector, farm production and manufacturing.
The depreciation of the shilling is also set to increase electricity prices through higher forex levies on power bills, as generators factor foreign exchange fluctuation adjustment charges, which are passed on to consumers to meet among others, payments to suppliers and loan repayments.
Prices of food products such as cooking oil, wheat, maize and other imports are also expected to increase, adding pressure to households who are already grappling with historic prices of sugar, and exorbitant costs of other food commodities.
“As long as we continue to pay for most of our cross border transactions using the dollar, then demand for dollars is likely to keep the exchange rate high or even uptick it further,” financial and independent tax expert, Clifford Otieno, told the Star yesterday.
The solution, he said, is to grow the country’s exports and actively seek alternative currencies for payment purposes other than the US dollar, Euro and Pound.
Abraham Rugo, Country Manager, International Budget Partnership said: “ I think the policy stance now is to let it (shilling) find its resting place…market forces to balance things out.”
Last month, the country’s inflation slightly eased to 7.9 per cent on cheaper food prices mainly vegetables but remained above the preferred band of between 2.5 and 7.5 per cent.
“The inflation was largely due to increase in prices of commodities under Food and Non-alcoholic Beverages (10.3%); and Housing, Water, Electricity, Gas and other fuels (9.4%); and Transport (9.4%) between June 2022 and June 2023,” KNBS director general Macdonald Obudho said.
These three divisions account for over 57 per cent of the weights of the 13 broad categories. BY THE STAR