Shilling down to six-month low on high dollar demand

The shilling yesterday depreciated to a six-month low of 104 units against the US dollar, which has been ascribed to the increasing demand of the dollar from oil companies, food importers and firms paying dividends to investors abroad.

The depreciation raises concern that it could graduate into inflation, being already higher than the desired range.

According to CBK yesterday, the mean value of the shilling to the dollar was Ksh 104.0167. A dollar is now being bought at Ksh 103.9167 and being sold at Ksh 104.1167.

            Some analysts go ahead to interpret this as a result of a weaker economy as well as political uncertainty prior to the general elections early next month.

In a weekly fixed income note, the Commercial Bank of Africa said, “The concern for the CBK is the potential pass-through effects of further shilling depreciation on inflation, which has been trending above the upper limit of the statutory target band of 2.5-7.5 per cent for the last five months.”

In June, inflation fell to 9.2% from 11.7% in May, but still remains above the target range. The CBK Monetary Policy Committee meets next Monday for the final meeting before the polls.

 

Written by Collins Gathogo

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