Kenya’s shilling is likely to fall against the dollar, and may even hit a new record low, after the central bank’s surprise decision this week to keep its main interest rate on hold at 6.25 percent despite galloping inflation.The import of more than 230,000 tonnes of maize at a cost of more than $100 million to ward off the worst effects of a food crisis in east Africa’s largest economy will also put pressure on the currency, traders said.”At the moment, all signs are that the shilling is on a downward trend against the dollar. We expect it to continue depreciating,” Solomon Alubala, head of trading at Co-operative Bank, said.At 1200 GMT, the shilling traded at 90.80/91.10 against the dollar, weaker than last Thursday’s close of 89.95/90.05 and closing in on a record low of 91.90 plumbed on June 22.
Even though it expressed concerned about inflationary pressures, the central bank said on Wednesday it considered any further tightening of monetary policy counter-productive.”If you do maintain a low interest rate regime, then you would expect depreciation of the currency,” Alubala said. “For now I think we’ll look to 92.1. It will attempt to touch the year’s highs,” Alubala said.The end of the month typically sees elevated dollar demand, putting further pressure on the currency.The only respite might come from revenues from tourism, which is now at peak-season, although early bookings mean some of those flows may already have been accounted for.
“We expect some compensation from the tourism sector so I really don’t see a weaker or strengthening shilling. I see it in a range of 90.30/91.30,” said Kennedy Butiko, deputy head of treasury.