The Kenyan shilling is facing renewed pressure after months of relative stability, with increased demand for dollars from oil marketers and general importers expected to weigh on the local currency in the coming week.
According to Reuters, currency traders expected the shilling to lose ground as businesses sought more dollars to pay for imports, although foreign currency inflows from charities could limit the decline.
Commercial banks quoted the shilling at between Ksh129.75 and Ksh129.95 per US dollar on Thursday, unchanged from a week earlier. However, traders warned that increased demand for the dollar could put pressure on the exchange rate.
The outlook comes as Kenya faces higher petroleum import costs, raising concerns about the potential impact of further shilling weakness on domestic fuel prices.
A photo collage of Central Bank of Kenya governor and shilling notes and coins
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CBK
Oil marketers require dollars to purchase petroleum products from international markets, meaning a weaker local currency increases the amount they pay in shillings.
The Energy and Petroleum Regulatory Authority (EPRA) recently raised fuel prices for the period running from October 15 to November 14, increasing petrol by Ksh12.93 per litre, diesel by Ksh9.90 and kerosene by Ksh28.49 in Nairobi.
EPRA attributed the increases partly to higher international import costs, with the average landed cost of imported petrol rising by 11.81 per cent from USD874.26 (Ksh113,409) per cubic metre in August to USD977.55 (Ksh126,808) in September.
Diesel import costs also increased by 11.32 per cent from USD957.05 (Ksh124,149) per cubic metre to USD1,065.38 (Ksh138,201), while kerosene rose by 9.41 per cent from USD1,003.87 (Ksh130,222) to USD1,098.31 (Ksh142,473) over the same period.
“The trade of petroleum products in the international markets is denominated in United States Dollars (USD), and an exchange rate is applied to convert the USD to KShs during the computation of local pump prices,” EPRA stated.
This comes as CBK Governor Kamau Thugge warns that rising fuel prices could add to inflationary pressures, although falling food prices may help offset the impact on consumers.
“Even if there is an increase in the fuel prices, the food prices have actually been trending downward, so one will still need to wait and see what happens to the food prices, and whether the decline in food prices offsets whatever increase there might be on fuel inflation,” Thugge told Reuters.
According to experts, if the shilling weakens in the coming weeks, importers could face additional costs when converting dollars into local currency, potentially adding pressure to future pump prices.
A weaker shilling could also increase the cost of importing other goods, including machinery, electronics and industrial raw materials, raising expenses for businesses that rely on foreign suppliers. The extent to which such costs are passed on to consumers would depend on market conditions and the ability of businesses to absorb the increases.
Fuel tankers lined up to collect petroleum products for distribution in various parts of the country.
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Bizna Kenya