Tough times ahead as shilling weakens further

By Jackson Okoth and James AnyanzwaManufacturers have warned of further increases in commodity prices as the shilling exchange rate falls to its lowest level ever.
On Tuesday, the local currency opened trading at a mean rate of Sh86.32 to the dollar, selling at Sh86.41 to the greenback after the Central Bank of Kenya (CBK) ruled out the possibility of intervention.
"There was a bit of weakening of the shilling which we can be attributed to speculators on the prowl. However, in the second half of the day, the shilling tried to recoup some of its earlier losses mainly because of profit taking by banks," said Mwambu Malamba, senior dealer at the Commercial Bank of Africa (CBA).

Central Bank of Kenya. The regulator has ruled out possibility of intervention to save the shilling. [PHOTO: JENIPHER WACHIE / STANDARD]

The Kenya Association of Manufacturers (KAM) said the weakening of the local unit has since pushed up the cost of production by seven per cent.
Mr Jaswinder Bedi, the association’s chairman said the worrying situation has been compounded by an increase in fuel prices.
He said the two factors have affected the price of raw materials and pushed up the cost of inputs.
"Kenyans will be affected by the double impact of an increase in oil price and the weakening of the shilling, which have inflationary pressures," Bedi told The Standard on Tuesday.
Inflationary pressuresBedi said manufacturers will have to cushion themselves by passing some of the costs to consumers through increases in commodity prices.
"There will be some cushioning that the industry will do. There will an upward increase in prices of commodities," said Bedi.
The shilling has been weakening against a basket of currencies in the last few weeks, extending a losing streak that started in the fourth quarter of last year.
Figures from CBK also indicate that the local unit opened the markets trading at a mean rate of Sh139.09 to the British Pound and Sh120.22 against the Euro.
A weakening shilling is happening when the Arab crisis is causing an upward movement in fuel prices, also providing side shocks on cost of living index.
High crude oil prices pushed up by political problems in the Arab World and reduced tea exports is causing the shilling to lose ground against the dollar.
It is expected that local manufacturers of food items such as flour and cooking oil will continue to adjust prices upwards as they seek for more shillings to import raw materials.