Cost of imports set to rise as shilling falls further

The Kenya shilling plunged against the US dollar, breaching the 95-point mark ysterday, as analysts projected increased further weakening as demand for the greenback grows.

The local unit, 5% weaker this year, has come under pressure from demand by corporates and importers of capital goods for various infrastructure projects. The currency closed trading yesterday at 95.05/95.15 to the dollar compared to Monday’s trading of 94.80/94.90.

“The economy is growing and there’s great demand for dollars for import of capital goods. Increasing demand for the dollar continues to put pressure on the shilling,” said National Bank of Kenya’s head of trading, Chris Muiga.

At the moment, the shilling is trading at its lowest level in three years. Analysts at NIC Bank indicate the widening current account deficit, a strengthening dollar and lower inflows due to a slump in tourism caused by terrorist attacks, remain key risks to the unit.

Businesses are wary of the ongoing depreciation of the local currency against the dollar, as the fall could lead to high prices for imports, which will affect those of inputs and consequently the final cost of products.

The Central Bank of Kenya’s Monetary Policy Committee is expected to meet today without a governor to set the benchmark lending rate that has been at 8.5% for about two years.

(DAILY NATION)