uncertainty prevails in the money markets as the kenyan shilling hit the a 100 mark to the dollar.

For the first time in the history of the kenya’s shilling,the story has it that the shilling hasn’t depreciated to it’s lowest against the dollar ,like it is behaving at the moment.The value of the shilling at the exchange rate with the dollar and other currencies has hit the lowest mark.Uncertainty prevails in the market as the exchange rate with the dollar hits the 100 mark .It’s on a downward trend and it’s losing the ground with each an every passing day.

It’s a pity to note that our currency has crossed the psychological significant kshs.100 per dollar mark.From an average of shs.80.80 to the dollar in the first week of this year,it has moved steadily to around Shs.100.Call it desperate moments ,as the shilling is ranked among the poor performing currencies in the market.

In whatever case ,a weak shilling is not good for the economy and it makes us feel weak.This has plunged the markets into uncertainty.As a result ,it is now difficult for business to either predict,or,plan their activities.You cannot even plan how much you will save because you don’t know how much you will spend in a month because prices keeps on changing.

The shilling has fallen by about 24 percent since the beginning of the year.The currency has lost 43 percent of it’s value since March 4, 2007,when the current Central Bank of Kenya governor,Prof.Njuguna Ndung’u,took over the reins.

The free fall of the shilling is the latest sign of worsening macro-economic conditions.Inflation is currently at a rate of over 16 percent,with the poor experiencing an inflation rate of 17.1 percent,while the middle and upper class facing an inflation rate of 12.9 and 11.3 percent respectively.It’s slide has put pressure on the cost of living with inflation projected to hit 20 percent.And,already the effects of the depreciating shilling is being felt across the board.

And,for a country that relies on imports than what it produces and exports ,coupled by an economy that’s in doldrums which glides on a single engine of which develops mechanical problems oftenly ,the we do have a case to worry about.This equilibrium questions our economic strategic policies as a country,as this happens to be one of our major undoing,which also translates that we don’t produce more than enough to sustain us.

The only time the shilling has ever hit it’s highest mark was in the early 1990s,when one of the biggest corrupt scandal was hatched -the goldenberg.It was orchestrated by the klepto-cratic former K.A.N.U regime barons.Billion of shillings were ripped off from the crippling economy to pay dubious corrupt deals,which still haunts us even today.

But,in a rejoinder,in an attempt to calm the foreign exchange markets ,the Central Bank is selling the dollars directly to key sectors of the economy.Such a drastic intervention by Central Bank are usually temporary and have specific short-term objectives.It is to be hoped that these measures will be reversed once the shilling stabilises.This is because the Central Bank is not designed to offer the kind of foreign exchange services provided by commercial banks.

The situation shows that the C.B.K’s stop-gap measure to stabilise the exchange rate are yet to yield results.Market players said C.B.K came into the market selling unspecified amount of dollars but this has not brought respite in the fall.Central Bank sold the dollars to individual banks on the basis of their demand.

In these uncertainty situations ,the commercial banks and forex bureaus who do act like cartels a time like this ,are having a field day and they are smiling all the way after ripping profits.They have hyped the money markets by creating a scarcity of dollars so that they can profiteer.

With the government rolling out several infrastructural projects,including roads and expansion of airports and ports ,there are fears that some of them may become more expensive to implement .Since January,the Monetary Policy Committee and C.B.K have made several materials 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 dollars in the market.

But,when did we reach this point we are,where markets are so uncertain?According to an economic lecturer,Dr.Joy Kiiru,she said that,inflation is one of the biggest factors in the currency depreciation .”If our rate of inflation is higher than that of our major trading partner-given a liberal currency market-the shilling will depreciate”There are good reasons why kenya’s inflation is spiraling out of control,the majority boardering on policy failures.

She further noted that another reason for depreciation of a currency ,”the national Trade Deficit”,when the total value of a country’s imports exceeds the total dollar value of it’s exports,the country has a trade deficit.This means the country is exporting fewer goods than it’s importing.

When a country ‘s trade deficit increases ,the value of that country’s currency depreciates against the currency of it’s trading partner countries.

But,the main problem is that we are where we are because of government’s poor management of the supply side of the economy and because of commercial banks’ greed.The truth is that a government that has failed to put in place long-term measures to cushion the economy from such problems cannot be expected to come up with a solution to what is a global problem.

We must remember that the C.B.K alone cannot cause the exchange rate to appreciate unless it’s action are supported by actions of the government in the form of provisions of necessary infrastructure for production and the promotion through much more aggressive policies that will lead to the expansion of the exports needed for foreign exchange inflow.

What shilling needs now is immediate help and it is only the C.B.K that has the tools and the expertise to fight on this front.


pixelstats trackingpixel

You can leave a response, or trackback from your own site.

Leave a Reply

Powered by WordPress
Flag Counter
Wordpress SEO Plugin by SEOPressor