The exchange rate of the Kenya shilling against the US Dollar has witnessed an upward pressure over the last one week.
The shilling is currently trading at the 92-93 level against the dollar which is a three-year low.
The Central Bank of Kenya, concerned at this development, has hinted at intervening to save the local currency and reduce inflation pressure.
“This is mainly a reflection of a strong US Dollar in the global market coupled with an elevated but seasonal demand for foreign exchange from the local corporate sector witnessed at this time of the year,” the CBK says in a statement released today.
The dollar has been rising on expectation that interest rates in the US will rise in the next two months — further weakening the shilling through reducing investible dollar supply.
A weak shilling means imports will be more expensive as traders will need more Kenya shiilings to get dollars. This, however, works well for exporters and those paid in dollar terms.
Central Bank says it is closely monitoring developments in the foreign exchange market and will continue to use appropriate monetary policy instruments to minimize volatility of the Kenya shilling exchange.
“The Bank has adequate foreign exchange reserves in excess of 4.5 months of imports to cushion the exchange rate against these short-term shocks and volatility,” it says.
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