, NAIROBI, Kenya, May 13 – Hedging against foreign currency exposure is increasingly becoming important amongst local importers due to the continued weakening shilling against the US dollar.
Some locals firms are making long financial contracts for importation of up to six months contracts to avoid making loses from future international purchases in case the trend continues.
“We have seen importers who were still uncertain whether they should actually hedge or not but I think with the recent trend of the Kenya shilling we have experienced an increase in the number of importers who are taking hedging,” Ecobank Country Treasurer Bobby Otieno Bobby Otieno said in an interview on Wednesday.
He says despite the existence of the practice earlier on, there has been an upward trend since the shilling started being under pressure in the recent weeks.
“It doesn’t mean that all over sudden they are hedging. They have been doing so for, one month, three months, six months and sometimes up to a year. So it depends on how much of the exposure they want to hedge,” Otieno explained.
Hedging can be accomplished by purchasing or booking different types of contracts that are designed to achieve specific goals.
Currency hedging is used by financial investors and businesses to eliminate risks they encounter when conducting business internationally.
READ: Why shilling is under pressure, possible solutions
Commercial Bank of Africa Treasury department also mention increased hedging by its customers as they seek to caution themselves from the pressure.
“Customers are seeking to cut exposure from the falling shilling that has gone down by nine percent in the past four months. This makes business sense,” CBA Treasury department said, quoting shilling at 96.50 buying and 96.70 selling to the dollar.
“The shilling is languishing near recent loss against the dollar as the market took a breather. Going forward we expect the dollar shilling pair to test resistance around 97 levels,” CBA traders said.