Dollar Zooms Past Sh150 as Pressure Piles on Kenyan Shilling

Kenyan banks are currently charging retail dollar buyers up to Sh154 per unit due to the high demand for the currency.

The margin between the official exchange rate quoted by the Central Bank of Kenya for the US dollar and the rate offered by banks and money changers is also increasing. This is in contrast to the State's forecast of increased strength for the shilling following the implementation of market reforms and a government-arranged fuel import program. President William Ruto had previously remarked that the shilling would appreciate to under 120 per dollar in the next few months due to the oil import deal that would reduce the demand for dollars. However, CBK data shows that the shilling transacted at an average of 146.1353 on Friday.

Today, President Ruto is expected to launch a new CBK-backed mobile trading platform that enables Kenyans to invest in government securities via telephone. According to banks in Kenya, the high prices of the US dollar are a result of increased demand and the cost of accessing the hard currency. I&M Bank is selling the dollar at Sh152.5 per unit and buying at Sh144 per unit. Standard Chartered and Equity Bank quoted the selling price of the dollar at Sh152 and Sh151.9 per unit respectively on Friday, while buying at Sh141 and Sh142.7. Family Bank is selling the US currency at Sh149.5 per unit and buying at Sh144.

Kenya recently signed a deal with companies in the United Arab Emirates and Saudi Arabia for oil imports which includes a longer credit period aimed at receding the high demand of dollars in the market. Despite this, the country still confronts adversities from a currency crisis, as the $4 billion (Sh584 billion) fuel import bill under the government's scheme will mature in September, amidst the country's volatile dollar reserves.

By the end of this month, Kenya's payment in dollars will be due, reaching the half-trillion shillings mark. However, this may harm Kenya's economy since it heavily relies on imports, including cars, petroleum, machinery, medicine, pharmaceutical products, vegetable oil, wheat, clothing, and shoes. A weakened shilling would increase the cost of servicing public debt.

Moreover, the deteriorating value of the Kenyan shilling against the United States dollar is also affecting the country's foreign reserves which are primarily utilized for government payments. The latest CBK weekly statistical supplement showed that the pool of critical reserves decreased for the fifth consecutive week, reaching Sh1 trillion in the week ending September 7.