Regional buyers are spending more to buy the dollar, the preferred exchange currency.
A stronger shilling this year is making Kenyan exports to regional markets more expensive as peer currencies slide against the dollar.
The Kenyan shilling has gained two per cent against the dollar in the year to date in contrast with currencies of key trading partners, potentially hurting Kenyan exports by making them more expensive.
Domestic currencies of key trading partners have all depreciated to the greenback.
The Ugandan shilling has edged down by 3.6 per cent to the dollar since January, the Tanzanian shilling by 1.8 per cent, the Egyptian pound by 0.7 per cent and the Rwanda franc by 0.9 per cent.
A stronger shilling to the dollar relative to the currencies of trade partners hurt Kenya, given that the dollar is the preferred medium of exchange in international trade.
Diaspora inflows
Economists at Commercial Bank of Africa (CBA) say that while the Kenyan shilling remains well supported by diaspora dollar inflows and the robust Central Bank of Kenya forex reserves, the Ugandan shilling has come under pressure from high demand for dollars by the private sector and the government, while the Tanzanian currency is being hit by low inflows from the key mining sector.
The later sector has been paralysed by government audit of historical operations of international mining companies.
“The Kenya shilling may still outperform our forecast in June given the increased inflows amid fairly subdued demand…the Tanzania shilling is expected to maintain its gradual depreciation towards 2300 levels as crucial hard currency flows from mining sector remain subdued,” said CBA in its monthly economic report for June.
Uganda is Kenya’s largest market in Africa.