Shilling dips below Ksh.110 mark against US dollar

Shilling dips below Ksh.110 mark against US dollar

The Kenyan shilling has fallen to its lowest mark in more than six months against the US dollar as the unit continues to exhibit increased weakness. The local unit was quoted at Ksh.110.02 against the US dollar near the close of trading on Wednesday, according to tracking by Bloomberg, having traded within a range of 109.78-110.02. This is the lowest valuation for the shilling against the green buck since early February this year. Market actors have tied the continued weakening of the shilling to end month dollar demand from importers alongside the stay of excess liquidity within the financial markets. Pressure on the shilling from importers continues to emanate largely from new oil orders as the average price of crude remains north of $70 a barrel as of the end of last week. Meanwhile, government payments in the last week have served to retain liquidity in the money markets with the average inter-bank rate standing at 3.36 per cent as of August 31. The high liquidity is nevertheless against the tide of recent tax remittances and the ongoing sale of Ksh.75 billion infrastructure bond by the Central Bank of Kenya (CBK) which closes bids to investors on Tuesday next week. Previously, the weakening of the Kenyan shilling has been linked to tightening global financial conditions arising from COVID-19 uncertainties. The CBK has deployed open market operations (OMOs) in recent weeks to ease any volatility in the exchange rate mainly featuring the sale of re-purchasing agreements (repos). At the same time, the reserve bank has sold dollars from its pool of reserves to even out unmatched dollar demand in the financial markets. For instance, the size of usable official foreign exchange reserves shrunk by Ksh.22.3 billion ($203 million) in the past week, easing to an equivalent 5.49 months of import cover from a greater cover of 5.62 months. At Tuesday’s trading close, the CBK had quoted the shilling at Ksh.109.89 against the US dollar. The local currency unit has since shed all of its gains against dollar in the year to date (YTD). On its best run so far in 2021, the shilling had eked nearly 1.3 per cent in gains on the green buck. The shilling meanwhile saw its weakest run in history last December when it threatened to cross the Ksh.112 mark against the dollar.

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