CHINEDU OKAFOR
Friday August 11, 2023
Consumers now pay a high price for imported products as a result of the Kenyan shilling's costliest freefalls in history, which saw it lose over half of its value trading against the US dollar in less than 50 months.
The Kenyan shilling is under pressure due to some commercial banks in Nairobi already selling US dollars beyond the Sh150 threshold, preparing customers for a new round of currency-driven price rises on imported goods including fertilizers, electronics, and vehicles.
The dollar conversion rate at I&M and Sidian Bank has surpassed Sh150, according to a spot check by the Business Daily (a Kenyan business news publication) on Monday afternoon, as the nation struggled with a lack of foreign currency.
The Business Daily evaluated three forex bureaus and 11 banks in Nairobi, and the average selling price for the dollar was rapidly approaching the Sh150 threshold.
The average exchange rate, according to the Central Bank of Kenya (CBK), was Sh142.98, a significant difference from the actual trade on the ground as reported by forex dealers.
The dollar was trading between Sh146.7 and Sh149.1 for the other nine banks as the shilling weakened despite the government's efforts to stop the devaluation. Although a teller informed us that the tier 3 lender was purchasing dollars at Sh134.9 and selling them at Sh150.9, the Sidian Bank branch we visited did not post forex values on the exchange rate board.
This indicates that of the 12 forex dealers we selected, Sidian Bank, owned by Centum Investment, had the largest spread with a net margin of Sh15.1.
A dollar fetched Sh152.9 at I&M, Sh149 at Standard Chartered Bank, and Sh148.9 at KCB. At Cooperative Bank and Stanbic, the exchange rate was at Sh148.5 and Sh147 respectively. Absa was selling the dollar at Sh147.18 and DTB at Sh146.7. All three forex bureaus that we sampled were selling dollars at an average of Sh145.
Recent contributions from development partners, such as the International Monetary Fund (IMF), which last month released Sh58.6 billion ($141 million), have significantly increased Kenya's official foreign exchange reserves. Importers have been obliged to reduce their purchases despite customers paying more for goods like gadgets and autos.
Due to the expanding difference in the prices at which banks purchased and sold foreign currencies, particularly dollars, in 2022, currency trade was one of their main sources of income. As a result of the shilling's decline versus the dollar, foreign exchange income increased by at least 30% across all banks last year, with I&M leading the way and NCBA following.
In the past, President William Ruto predicted that with the establishment of the government-to-government agreement for oil imports, which was intended to provide a longer-term supply of fuel, the shilling would strengthen.
The President pointed out that the agreement would allow oil marketers to pay for petroleum in the local currency, relieving monthly pressure on the demand for dollars, which have been in limited supply. “In fact, in my estimation, in the next couple of months, the exchange rate will come below Sh120. Maybe Sh115, you never know,” the president said.
The shilling has however been in fast fall, losing close to 15.8% of its value since the start of the year as the nation continues to struggle with a dollar shortage that has been made worse by the rise in interest rates by central banks in industrialized nations.