Kenyan Shilling Hits Record Low Amid Uncertain Economic Climate

In the midst of uncertainty surrounding the upcoming head of government, the Kenyan shilling hit an unprecedented low on Friday. This comes after nine petitions were filed challenging the victory of the Presidential-elect, casting doubt on the country's economic future.

The decline of the Kenyan shilling has been a continuous trend over the past 16 months. On Friday morning, it traded at 120.10 units to the dollar, before stabilizing at 119.90 in the afternoon.

Various forex traders attribute the weakening of the local currency to high oil prices and strong demand for foreign currency from sectors such as energy and manufacturing.

Furthermore, importers' demand for foreign currency at the end of the month has added pressure on the shilling, a trend that is expected to persist in the coming days.

Experts at AIB Capital have linked the depreciation of the shilling to rising petrol and diesel prices. Geopolitical tensions in Eastern Europe have caused global crude oil prices to soar, resulting in a trickle-down effect on fuel costs within Kenya. Consequently, this has exerted more pressure on the shilling, leading to further devaluation.

Additionally, the shilling has suffered due to an escalating import bill that surpasses earnings from exports, diaspora remittances, and tourist receipts. In 2021, the value of Kenya's imports stood at Sh2.151 trillion, while export earnings reached only Sh743.7 billion, according to the Kenya National Bureau of Statistics (KNBS).

Moreover, diaspora inflows have dropped to a 13-month low of Sh38 billion in July, which can be attributed to the high cost of living globally.

A depreciating Kenyan shilling translates to increased expenses for importers when bringing goods into the country. Given Kenya's reliance on imports, these additional costs are ultimately passed on to consumers, leading to an overall rise in the cost of living. This is evident in the country's inflation rate, which reached a record high of 8.3 percent in July, largely due to the exorbitant prices of food and fuel.

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