Kenyan shilling hits 3-year low against US dollar amid weak exports

GMT 09:10 2015 Tuesday ,07 July

Arab Today, arab today Kenyan shilling hits 3-year low against US dollar amid weak exports

Kenyan shilling
Nairobi - XINHUA

The Kenyan shilling on Monday hit a three-year low against U.S. dollar at 100.15, which is by currency traders attributed to greater imports and weaker exports.

Speaking to Xinhua, officials at major commercial banks, said there had been reductions in the income from major agricultural exports -- tea and coffee, and the tourism sector, as well as in the Foreign Direct Investment (FDI) into the nation while import demand stands high.

"Our largest import at the moment is oil which causes high demand of the dollar. On the other hand, our major export is tea and that has been going down. Kenya has now been overtaken by the Brazil and Ethiopian tea," said John Njenga, head of Commercial Bank of Africa's Treasury.

Analysts say the shilling is under more pressure from the stronger U.S. dollar, whereas its depreciation reflects problems facing the Kenyan government.

"The depreciation of the shilling is a reaction to the net impact that the economy is suffering from the growth in the expenditure which is not commensurate with the growth of the money market," said an unnamed analyst with Kenya-based Equatorial Commercial Bank (ECB).

The government has set aside 7.84 billion U.S. dollars as recurrent expenditure, which is equivalent to 12 percent of the Gross Domestic Product, with another 2.64 billion U.S. dollars set aside for county governments.

Analysts fear the pending release of funds for the recurrent expenditure could ignite a liquidity crisis in the economy, pushing inflation "much higher" than the current 7 percent, thus further weakening the shilling.

"The huge fiscal budget indicates the government is likely to borrow more from the local economy," an unnamed executive for a regional commercial bank told Xinhua.

Meanwhile, investment climate in the country has fallen victim to waves of attacks by Somalia-based militant group Al-Shabaab.

Treasury Cabinet Secretary Henry Rotich has said the National Treasury was keen to strike a balance between "rapid support for economic growth and continuing fiscal discipline."

The Central Bank of Kenya (CBK) continues to tighten the monetary policy. It raised the Central Bank Rate to 10 percent in June.

Analysts expect a CBK meeting due on Tuesday to continue with the monetary tightening policy.

"We are importing a lot but there is no improved inflow from the shilling front. It is difficult to predict the direction of the shilling but it is likely to remain subdued," said the ECB analyst.

Arab Today, arab today
Arab Today, arab today
arabtoday arabtoday arabtoday
بناية النخيل - رأس النبع _ خلف السفارة الفرنسية _بيروت - لبنان
arabs, Arab, Arab