Why shilling is under pressure, possible solutions

April 28, 2015
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The Central Bank of Kenya (CBK) has now been urged to come up with more measures of protecting the currency which could "touch 100 mark in the next three weeks if much is not done."/FILE
The Central Bank of Kenya (CBK) has now been urged to come up with more measures of protecting the currency which could “touch 100 mark in the next three weeks if much is not done.”/FILE
NAIROBI, Kenya, Apr 28 – A rush by government bodies to buy before the financial year closes in June is one of the reasons putting the Kenya shilling under pressure against the US dollar.

This is according to Chartered Institute of Marketing; East Africa Chairman James Ngomeli who says importation led by huge government contracts has also in the last few weeks strained the shilling.

“The Kenya Shilling has come under intense pressure in the last one month as we have seen it weakening against the dollar at a rapid rate and something must be done,” Ngomeli told Capital FM business on Tuesday.

On the other hand, the perception of a weaker security situation in the country has had huge impact where we have outflows from the stock exchange seeing the shilling weakening further.

The security situation, he says, has seen the tourism sector go down leading to less dollar inflows that come with the visitors.

“Government’s weak response to security matters is sending the investor confidence low. The government must develop a good propaganda machinery to counter the threats that are sending expats and tourist away,” he argued.

The Central Bank of Kenya (CBK) has now been urged to come up with more measures of protecting the currency which could “touch 100 mark in the next three weeks if much is not done.”

“As leaders in the industry, this situation is not acceptable at all and the central government and CBK must not let this happen. Central Bank intervention is key to keep the dollar at the 90 level by using its reserves to shore up the shilling,” he urged.

CBK has also been urged to be keen and deal with any speculators especially in the financial sector which could worsen the situation.

In the long term, Ngomeli says, continuous branding of Kenyan products to get premium pricing at the international markets was crucial.

Meanwhile, Cyton Investment Company attributes the poor performance of the shilling to heightened US dollar demand by corporates to pay dividends to foreign shareholders.

CEO Edwin Dande is however confident that Central Bank is capable of handling the situation and bring back the shilling to below the 90 levels.

“The Central Bank was active in the market supporting the shilling and this is expected to continue given the high reserves amounting to 4.5 months of import cover, which is well above the East African Community’s required minimum of four months,” he noted.

CBK has in the month of April alone, intervened three times by releasing dollars in the market to contain further pressure.

“The shilling held stable in today’s (Tuesday) trading session. This is a change from yesterday’s close of 94.25 buying and 94.32 selling and there has been little demand for the greenback, with some improved supply that could support the shilling at this level,” Commercial Bank Africa (CBA) traders told Capital FM Business.

“The market is watching out for any fresh factors that could give direction, as to where the shilling will be for the remainder of the week,” they added.

On Tuesday trading stood at 94.23 buying and 94.36 selling to the US dollar.

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