NAIROBI – The Kenya shilling is set to hit the much-anticipated 90.20 mark against the dollar today, which could prompt the Central Bank of Kenya to act. Initially, analysts had projected that the regulator would enter the market when the local currency hits the 90-mark.
“It reached the lowest mark in three years against the Dollar yesterday. But now the interbank rate stands at 90.10. This means that we are 10 cents away from the CBK’s intervention,” said Gerald Muniu, a dealer at the Guardian Bank.
Yesterday, the shilling closed at 89.95/90.05 to the dollar against Monday’s close of 89.75/85, having hit an intra-day low of 90.00/90.10. This year alone, the currency has weakened by about four per cent due to the drop in inflows from tourism and tea exports caused by a global oversupply.
“The shilling may weaken further unless the central Bank intervenes,” a trader at African Corporation Bank said. On Tuesday, CBK sought to mop up Sh10 billion in excess liquidity. On Monday, it had sought to mop up Sh20 billion. Economic analysts say the fluctuating of the shilling is already impacting negatively on the economy, as imports are increasingly turning out to be more expensive.
This could decrease Kenya’s trade deficit over time. Secondly, a weak shilling will naturally impact negatively on capital flows as foreign capital tends to flow into countries that have relatively stable currencies.