Brace for tough Christmas as shilling weakens – experts

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Brace for tough Christmas as shilling weakens – experts
Brace for tough Christmas as shilling weakens – experts

Africa-Press – Kenya. Families should brace for a tougher Christmas as traders pass the high import cost on household necessities due to the weakening shilling.

The local currency has been trading above 112 units against the greenback, forcing importers to spend more to import products.

Already, prices for some commodities including sugar, bread and cooking gas are up by up to 30 per cent, partly attributed to global currency fluctuation that has seen inflation hit a two-decade high in stable economies like the US and UK.

Money market and economic experts are fearing for the worst as Europeans and Americans stock for winter.

According to James Kiptoo, a freelance economist, the winter stocking has sent dollar demand on the roof as families buy in bulk in preparation for long winter holidays.

“The global dollar scarcity is likely to hit families hard. This is going to be worsened by high fuel prices on low production by net producers,” Kiptoo said.

He, however, added that high Christmas spending and the onset of political campaigns will support currency supply with commodity prices likely to increase.

A weaker shilling means importers, spend more to bring in goods such as petroleum products and raw materials for factories.

This in turn translates to an increased cost of living as the importers pass on the cost of imports to traders.

Kenya’s inflation eased slightly to 6.45 per cent in October from 6.91 in September on eased Covid-19 restrictions, Kenya National Bureau of Statistics data shows.

According to Fitch Solutions, Kenya’s huge trade deficit occasioned by high import demand will further weaken the shilling next year.

The financial services agency expects the Kenyan shilling to depreciate from a year-to-date average of Sh108.68 per dollar to Sh112.80 per dollar by the end of the year, averaging Sh109.60 in 2021 as a whole.

Last week, the Central Bank of Kenya was forced to spend almost Sh22 billion to cushion the shilling against a further drop, sinking the country’s dollar reserve.

According to the latest CBK weekly bulletin, the reserves fell to $8.873billion (Sh996.4billion) in the week ended November 19 from $9.094billion (Sh1.02trillion) the previous week, a Sh21.8billion drop.

The reserves are now the equivalent of 5.42 months of import cover, down from 5.56 months last week.

“This meets the CBK’s statutory requirement to endeavor to maintain at least 4 months of import cover, and the EAC region’s convergence criteria of 4.5 months of import cover,” the Central bank said.

The reserves had rebounded in the week ended November 12 as the CBK reserves reflected remittances sent in October.

Kenyans living and working abroad sent home $337.4 million (Sh37.8 billion) in October, an 8.9 per cent increase from $309.8million (Sh34.7billion) in September.

Diaspora remittances are Kenya’s largest source of foreign exchange.

The apex bank failed to explain the reasons for the drop, but this could be attributed to releasing dollars to the market to cushion the shilling.

The country’s high import bill has also continued to pile pressure on dollar earnings from exports and tourism as they are unmatched.

The latest data by the Kenya National Bureau of Statistics(KNBS) shows that exports for the first nine months of the year to September stand at Sh543.4billion while imports stand at Sh1.532 trillion

With imports growing ahead of exports, Kenya’s current account deficit has deteriorated to 5.6 per cent in September 2021 from five per cent last year according to CBK data.

Kenya is set to receive a Sh29 billion($264 million) facility from the International Monetary Fund (IMF) in the coming weeks.

This is set to buff up the country’s dwindling dollar reserves.

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