Relentless depreciation of the Kenyan shilling is raising concern among importers and businesspeople who are experiencing first-hand the pain of a dollar shortage that has seen them part with up to Ksh120 per dollar against the quoted rate of Ksh116.
The Kenya Association of Manufacturers on May 30 expressed worries over the dollar shortage, claiming members, who mainly rely on imported raw materials, cannot access dollars at the official market rates.
Already, rising inflation has heightened the cost of living, and the depreciating currency is only exacerbating the pain as manufacturers complain of rising production costs due to the persistent dollar shortage.
In the past year, the shilling has fallen by $0.0007 from about $0.0093 to $0.0086, meaning that what Kenyans could buy at $100 previously now costs at least $8 more, without factoring in inflation.
During the same period, other currencies in the region have remained relatively stable, only decreasing by a small margin, even though most of the shocks that cased currency depreciation, such as Covid-19 and the Ukraine crisis, cutting across.
The Ugandan shilling depreciated by $0.00002, Tanzanian shilling by $0.00001, while the Rwandan franc has fallen by $0.00003.
Kenyan economist Kwame Owino told The EastAfrican that the higher depreciation rate of the shilling could be due to internal policies and regulations constricting the inter-bank forex market.
“The little clarity in the price signals of Kenya’s inter-bank foreign exchange, and growing negative trade balance are the greatest possible contributors to the high depreciation rate,” Owino said.
Although Kenya’s foreign currency reserve has remained well above the country’s and East African Community’s statutory requirements, the dollar shortage problem is disconcerting, seeing that Malawi recently devalued its currency by 25 percent to deal with a similar problem.
Central Bank of Kenya Governor, Dr Patrick Njoroge, has since refuted claims of a dollar shortage, saying that although there was rising demand for dollars about two months ago, the situation has normalised.