The Kenyan shilling has been on the free fall of late. A lot of pressure has been piling on the local currency from the US Dollar. At one point, the struggling shilling fell beyond 110 shillings to the Dollar. CBK has remained mute but things are getting hot.
Analysts from Cytonn Investments are of the view that the Kenyan shilling should not expect any breathing space soon. They say pressure in the coming days is likely to increase and this will be replicated in Kenya’s rising inflation rate.
The rising uncertainties in the global market due to the Coronavirus pandemic, which have seen investors continue to prefer holding their investments in dollars and other hard currencies and commodities. This will pile pressure on the shilling.
The widened current account position which increased by 0.5 percentage points to 5.4 percent of GDP in the 12 months to August 2021, from 4.9 percent of GDP for a similar period in 2020 will continue hitting the shilling.
At the same time, demand from energy importers as they beef up their hard currency positions in the prevailing elevated global oil prices will pressure the local currency too.
Read More: Kenyan Shilling Closes The Week At Ksh 110 To The Dollar
What happens when the shilling weakens?
The price of goods increases. This is because the shilling “loses value” and people have to spend more than before to get what they need. This leads to a rise in the inflation rate. Now with the fuel prices above the roof, the inflation rate will be beyond this month.
The cost to import rises. Most goods imported are paid for by the use of the US Dollar. The more the dollar is on-demand, the more the shilling weakens. This means people have to convert more local currency to hit the dollar to improt.