Just when Kenya thought it had seen the worst of its currency woes, the shilling tumbled to a new historic low of 99 to the dollar as if to render Central Bank’s frantic salvage tactics irrelevant.

The shilling — a crucial unit for the East Africa region — took its worst beating last week, having lost 23 per cent since January as it was battered by surging inflation and deteriorating balance of payments all the while the CBK tinkered with monetary policy interventions.

While the CBK continued to churn out one policy pronouncement after another, the unit continued to weaken on the back of economic woes in the Eurozone and increased demand for imports associated with Kenya’s recovery to a high growth path, analysts said.

Because of Kenya’s role as the economic powerhouse of the East African region, the escalating currency crisis could have significant economic repercussions for Uganda, Tanzania, Rwanda and Burundi — which are among Kenya’s biggest trading partners — even as these countries themselves battle weakening currencies and inflation. As the shilling edged towards the 100 to the dollar mark on Friday, the CBK released a terse statement seen by analysts as an attempt to cool the confidence crisis in Kenya’s financial markets.

Global crisis of confidence

“CBK has already taken initial actions on monetary policy to contain inflation and foresees an easing of balance of payments pressures in the near future as the need for food imports declines and oil prices return to lower, stable levels. In the meantime, addressing the balance of payments gap will be the focus of discussions with the multilateral development partners,” said CBK Governor Prof Njuguna Ndungu.

“These current changes in exchange rate are partly attributed to global financial markets, which have continued to deteriorate with major declines in international stock markets. This is what is being described as the global crisis of confidence and naturally has caused panic in our market,” he said, adding the Bank would offer reverse repos in the market whenever necessary, in line with its obligation of maintaining liquidity.

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