Tuesday, September 27, 2011

Panic as shilling hits lowest level

The shilling on Monday fell to the lowest level, exchanging at Sh102 to the dollar.
This plunged markets into uncertainty. As a result, it is now difficult for businesses to either predict or plan their activities.
“If you took your child for further education abroad, you don’t know how much you will pay in shillings. You cannot even plan how much you will save because you don’t know how much you will spend in a month because prices keep on changing,” said Ms Eunice Wamaitha, a commentator on monetary policy issues.

The situation shows that efforts by the Central Bank of Kenya (CBK) to stabilise the exchange rate are yet to yield results.
Market players said CBK came into the market selling an unspecified amount of dollars but this has not brought respite in the fall. CBK sold the dollars to individual banks on the basis of their demand.
Since January, the Monetary Policy Committee and the CBK have made several material changes to the monetary policy mainly by increasing interest rates.

They hoped that holders of foreign exchange would be attracted by the high rates to release the dollars in the market.

The shilling has fallen by about 24 per cent since the beginning of the year, from Sh80.8 to the dollar on January 3 to Sh102 to the dollar on Monday.
The currency has lost 43 per cent of its value since March 4, 2007, when the current CBK governor, Prof Njuguna Ndung’u, took over the reins of power.

With the government rolling out several infrastructure projects, including roads and expansion of the port and airports, there are fears that some of them may become more expensive to implement.

The free fall of the shilling is the latest sign of worsening macro-economic conditions. Inflation is currently at the rate of over 16 per cent.

In August, the poor in Nairobi were experiencing an inflation rate of 17.1 per cent, while the middle and upper classes were facing an inflation rate of 11.3 and 12.9 per cent respectively. Source: Daily Nation, Posted on September 26, 2011, Reported by Joseph Bonyo