The Kenya shilling has remained relatively stable against the US dollar, but rising inflation is putting the currency outlook under closer watch. The shilling opened the week at KSh129.76 to the dollar, compared with KSh129.67 a week earlier.
The currency also gained ground against the euro, strengthening by nearly one per cent to KSh146.20. However, foreign exchange reserves declined to $14.93 billion as of October 1, from $15.04 billion a week earlier.
Despite the decline, the reserves still provide an import cover of 6.1 months. This is above the statutory minimum of four months, and therefore provides some cushion for the economy.
Attention is now shifting to the Central Bank of Kenya’s Monetary Policy Committee meeting on Wednesday, October 7. The benchmark interest rate currently stands at 8.75%, while inflation rose to 6.8% in September from 6.6% in August.
Food prices remain a major source of pressure, and food inflation accelerated to 9.5% from 9.0%. At the same time, core inflation increased to 4.0% from 3.4%. The Central Bank of Kenya said the rise in core inflation was partly driven by higher prices for processed foods, including milk and wheat products.
The shilling’s performance will also depend on developments in global markets. The US Dollar Index is trading around 102.2, while Brent crude remains above $100 a barrel amid supply risks linked to the Middle East.
Higher oil prices could increase pressure on Kenya’s import bill, and this could affect demand for foreign currency. However, the shilling has continued to trade within a relatively narrow range of about KSh129 to KSh130 against the dollar.
Market attention will therefore remain on the CBK’s interest-rate decision, global dollar movements and oil prices. These factors could determine whether the shilling maintains its recent stability or comes under renewed pressure.