July 17, 2019

Shilling hits 3½-year high to dollar

The shilling gained further ground on the dollar on Thursday to hit a three-and-a-half year high, setting the stage for cheaper imports of goods like cars, clothes, petrol and machinery.

The shilling traded at an average of Sh99.70 per dollar, a level it last traded at in July 2015, from Sh100.03 the previous day on increased hard currency inflows and a drop in demand for imports.

The local unit has been threatening to breach the Sh100 mark for the past two months, and has gained Sh2.50 to the dollar since the start of the year.

This will ease pressure on the cost of imported commodities for an economy that imports good worth nearly Sh2 trillion with petrol and industrial machinery coming top.

Exporters of goods like flowers, tea and coffee will feel the pinch of reduced earnings once they convert their dollar sales to Kenya shilling.

“Other than the usual dollar inflows from exports and remittances, we have also seen flows coming in from investors looking at the infrastructure bond currently on sale.

Optimism

“The demand side has been quiet as buyers adopt a waiting stance anticipating the exchange rate will go lower,” said a dealer at a commercial bank.

The shilling has strengthened progressively in the past two months, hence the optimism that the gains made so far on the greenback will hold.

Kenyan consumers are already seeing a positive impact on the cost of imported goods.

Fuel prices have come down significantly in the last two review cycles partly due to the strengthening shilling, coupled with the fall in global crude prices in December and January.

The stronger shilling lowers the real cost of importing the commodity for oil marketers who buy dollars in the local market to make their payments.

Others benefiting from the currency gain include vehicle importers, who contribute a significant share of dollar demand when buying vehicles from abroad. Manufacturers who depend on imported raw materials also benefit from lower input costs on their dollar payments to external suppliers.

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