Photo/FILE A currency dealer counts Kenya shillings at a money exchange counter in Nairobi. The Kenya shilling Monday fell further to trade at Sh89.50 against the US dollar.
By JOSEPH BONYO, jbonyo@ke.nationmedia.com
Posted Monday, June 13 2011 at 22:30
Posted Monday, June 13 2011 at 22:30
The Kenya shilling Monday fell further to trade at Sh89.50 against the US dollar.
This came even as the market was alive to the fact that the local currency could plunge to as low as Sh90 against the green buck soon.
Market records indicate that the last such levels were witnessed in March 1994.
The all time lows, dealers in the market have noted, is a worrying trend, having been sustained in the last one month.
“We have seen the demand rising over the last one month and not the same can be said of supply.
“This is very worrying for the market,” a dealer at a local bank, who did not wish to be named, said.
Push up inflation
Sustained lows for the home currency could further push up inflation that is today peaked at 12.95 per cent.
The currency market is hinged on a demand and supply model of operation. When demand for the dollar goes up, it weakens the shilling.
Last week, signs of pressure on the local unit were evident when it closed at an average of Sh88 against the US currency.
According to Mr John Muli, a dealer at ABC Bank, demand is attributed to the energy and cereal sectors, which are currently on an importation mode.
High oil prices in the country as well as importation of wheat and maize to cushion consumers have been at the centre of the shilling’s woes.
Other reasons for the performance besides demand could be offshore interest as well as perception.
Some market dealers said that the troubles for the shilling could also be linked to sentiment interplay between banks.
This could have been in line with the fall of the Euro against the dollar trickling down to the local currency.
Within first hours
The shilling opened trading at Sh88 and within the first hours, went down to Sh89, sending the market into frenzy.
At one point, it peaked at Sh89.75 during the day, an indication that it could not fight off a near 20-year low of Sh90 against the dollar.
While such a run would require the Central Bank of Kenya to intervene, the regulator is yet to act.
Market players said that CBK only mentioned it would tighten liquidity without expounding.
“The CBK needs to be specific on the actions it would take as part of its tightening measures,” another dealer said.
“The CBK needs to be specific on the actions it would take as part of its tightening measures,” another dealer said.
Posts
No comments:
Post a Comment