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Shilling weakens further past 133 mark


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Shilling weakens further past 133 mark


The Shilling on Thursday exchanged at 133.3 units against the dollar from 132.94. FILE PHOTO | NMG

The shilling has weakened further against the dollar despite the forex code introduced by the Central Bank of Kenya (CBK) and a government deal to import oil on credit from the Gulf states which were expected to ease the pressure on the local currency.  

The Shilling on Thursday exchanged at 133.3 units against the dollar from 132.94. 

Banks were selling dollars to customers at between Sh137.50 and Sh143.10 from highs of Sh145.00 while buying the greenback at between 128.10 and Sh130.70 per unit, highlighting the continued dollar shortage in the market.

The depreciation is set to trigger worsened dollar shortage in the market amid increasing foreign capital outflows as investors seek to protect their wealth and avoid difficulties in access to the greenback at their time of exit. 

It is set to put pressure on the cost of goods and services in the country such as imports like fuel, vehicles and machinery. It’ll further push up the cost of electricity and foreign debts. 

The shilling has been depreciating amid the aggressive rise of US interest rates to tame inflation since last year which led to an appreciation of the dollar and sustained shortage in the local market.

It has led to this trend despite plans by the government to support the foreign exchange market including measures to lessen the demand for dollars and control banks’ FX transactions.

The Energy and Petroleum Ministry struck a government-to-government deal with three firms in the Middle East for the supply of fuel for 270 days to alleviate the demand for dollars by petroleum importers by extending the time required to source the currency.

The three entities – Adnoc, Aramco and Enoc – are expected to supply oil to nominated local suppliers in Kenya who will be the only ones required to pay in dollars after the six-month window.

The nominated suppliers will then sell the fuel to the rest of the local players in Kenyan shillings, meaning that they will not need dollars to secure their orders anymore.

The CBK weeks later introduced the Foreign Exchange Code over concerns that some players had taken advantage of the depreciation and the dollar currency constraints to manipulate the market for their gains.

It was issued in a period of heightened attention on the local forex market after the shilling hit new lows of 145 units to the greenback in the retail market and crossed the 130 mark on the official printed rate amid dollar supply constraints that have threatened imports of key economic inputs.

Market players are prohibited from making transactions, creating orders, or providing prices with the intent of disrupting market functioning or hindering the price discovery process.

The code also requires banks to immediately conduct a self-assessment and submit to the CBK a report on their level of compliance with the new code by April 30, 2023, and thereafter submit a detailed compliance implementation plan approved by their boards by June 30, 2023.

Failure to comply with the code will see banks face ‘administrative action including monetary penalties as provided for under the Banking Act’.

Bank executives have however said the code has damped the supply of dollars in the interbank market as banks remain reluctant to trade dollars with each other out of fear of falling foul of the regulator if the prices exceed the expected range.

The country spends billions importing a wide variety of goods, including petroleum products, wheat, second-hand clothes, motor vehicles, vegetable oils and industrial machinery, whose costs are rising as the shilling weakens against the dollar.

Foreign investors have also been concerned about the increasing difficulty in accessing dollars in the Kenyan forex market, which makes it difficult for them to repatriate their sale proceeds and dividends offshore.

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