Kenyan shilling weakens on dollar demand

By Steve Umidha

The Kenyan shilling was under pressure on Monday as strong dollar demand by merchandise importers outstripped inflows from non-governmental organisations, traders said. At 0852 GMT, commercial banks quoted the shilling at 102.55/75 per dollar, compared with 102.45/65 at Friday’s close.

Kenya’s year-on-year inflation rose to 5.56% in November from 4.95% a month earlier, according to figures by statistics office released on Friday.

On a monthly basis, inflation was 0.40% from 0.28% in October, the Kenya National Bureau of Statistics said in a statement.

Inflation rose to 4.95% year-on-year in October from 3.83% a month earlier and to 0.28% from -0.11% month-on-month, according to Kenya National Bureau of Statistics.

The month-on-month (or year-on-year) inflation rate is determined by comparing the CPI for a particular month to the CPI of that same month in the previous year.

Inflation is caused by numerous factors, both locally and internationally. For example, during periods of drought or excessive rain, the prices of food could increase, leading to an increase in the inflation rate.

International factors like increases or decreases in oil prices can also lead to changes in inflation reflecting movements in energy and transport costs.

Depreciation in the exchange rate against the major currencies can also cause inflation since Kenya is a net importer of goods. Inflation can also be caused by factors that influence the demand for goods and services, like the amount of money ordinary people have available to spend.

High levels of inflation inhibit economic growth and cause the Kenya Shilling to lose value compared to international currencies, thereby discouraging the purchase of Kenyan goods and services.

It also makes it difficult for people to make long-term financial decisions, as they cannot be sure about the future value of their investments and savings.