Why Kenyan shilling is weakening against US dollar

The National Treasury says Kenya has enough dollars in its reserves despite reports suggesting that the important trade currency is extremely scarce.

Treasury Principal Secretary (PS) Dr. Chris Kiptoo, while appearing before the National Assembly Finance Committee on Friday, said that figures from the Central Bank show the country has enough dollar supply.

“Most commercial banks in the country have dollars. What’s happening is that those dollars are not being released [to the market],” he said.

Kiptoo said some banks have refused to sell the dollar, stating that the monies belong to their customers who operate dollar accounts.

“The banks keep on saying that the dollars in their possession belong to customers. If a customer does not want to release the dollar [into the market], what do you do? [Nothing],” he said.

Asked by the Finance committee chairperson Kimani Kuria (Molo MP) whether the commercial banks were hoarding the dollar, Kiptoo said: “The Central Bank of Kenya is better-placed to answer that.”

“[What I can say is] we still have adequate reserves,” said Kiptoo.

The PS said the Kenyan shilling was weakening against the US dollar at a fast rate because of external shock factors such as the Covid-19 pandemic and the ongoing war in Ukraine.

According to Kiptoo, the war in Ukraine has led to the spike in the prices of commodities such as food, fertliser and petroleum products.

“The high commodity prices mean that inflation also goes up,” he said.

Internally, Kiptoo said the drought has had a significant effect on the value of the Kenyan shilling.

“This means that Kenya can no longer meet its food needs, and therefore is left only with the option of importing most of the food, and the currency used in imports is the US dollar,” he said.

The principal secretary, however, said the dollar shortage was a global problem.

“If you study, you will see that virtually all countries have this problem. The US dollar has strengthened, while their currencies have weakened,” said Kiptoo.

At the same time, the PS said the Treasury and the Central Bank of Kenya will soon come up with regulations to govern the foreign exchange dollar margin, such that the rate at which the commercial banks sell the dollar is not significantly higher than that recommended by the Central Bank of Kenya (CBK).