Kenyan Shilling Faces Fresh Risks as Importers Seek More Dollars

Kenya’s currency market could face fresh pressure as importers increase their demand for US dollars to finance overseas purchases. Oil marketers are among the businesses expected to drive demand, potentially weakening the shilling in the coming week.

Reuters reported that currency traders anticipate a possible decline despite the shilling’s recent stability. Commercial banks quoted the dollar at between KSh129.75 and KSh129.95 on Thursday, October 15, matching the previous week’s range.

Traders warned that increased demand for foreign currency could change the exchange-rate outlook. However, dollar inflows from charities could provide some support and limit the shilling’s potential losses.

The outlook comes amid rising international petroleum costs and recent increases in local fuel prices. A weaker shilling could make imported fuel and other foreign goods more expensive for Kenyan businesses.

Fuel Importers Face Exchange-Rate Pressure

Oil marketers purchase petroleum products in international markets using US dollars. They therefore need more shillings whenever the local currency loses value against the dollar.

The exchange-rate risk comes as Kenyan motorists face higher pump prices following EPRA’s latest monthly review. For October 15 to November 14, petrol prices in Nairobi increased by KSh12.93 per litre, while diesel rose by KSh9.90.

Kerosene recorded the largest increase, rising by KSh28.49 per litre. The Energy and Petroleum Regulatory Authority linked the adjustments partly to higher international import costs.

EPRA data showed that imported petrol’s average landed cost climbed from USD874.26 per cubic metre in August to USD977.55 in September. That represented an increase of 11.81 per cent over the period.

Diesel’s average landed cost rose by 11.32 per cent, reaching USD1,065.38 per cubic metre. Kerosene costs increased by 9.41 per cent to USD1,098.31 per cubic metre.

The regulator explained that petroleum products trade internationally in US dollars. Exchange rates therefore determine how those dollar-denominated costs translate into shillings during local fuel-price calculations.

Thugge Highlights Uncertainty Over Inflation

Central Bank of Kenya Governor Kamau Thugge has warned that higher fuel prices could increase inflationary pressure. However, he noted that declining food prices could help reduce the overall burden on consumers.

Speaking to Reuters, Thugge said policymakers needed to observe whether falling food prices would offset additional fuel-related inflation. His remarks indicated that the overall effect would depend on how prices in different sectors develop.

Fuel costs influence more than the amount motorists pay at petrol stations. Businesses that depend on transport, distribution and petroleum-powered equipment may also face higher operating expenses.

Those additional expenses can affect the prices of goods and services across the economy. However, the final impact depends on business costs, competition and whether companies pass increased expenses to consumers.

Weaker Shilling Could Raise Import Bills

Beyond petroleum, currency depreciation could increase the cost of imported machinery, electronics and industrial raw materials. Businesses relying on foreign suppliers may need additional shillings to purchase the same quantities of goods.

Importers could respond by absorbing some costs or adjusting their selling prices. The outcome would depend on their financial capacity and conditions in the local market.

The shilling’s direction will also depend on the availability of foreign currency. Traders expect possible charity-related inflows to help cushion demand from businesses making overseas payments.

For consumers, a sustained combination of higher import costs and a weaker currency could create further price pressures. Nevertheless, the latest exchange-rate outlook remains a market expectation rather than confirmation that the shilling will weaken.

Businesses and households will be watching currency movements alongside international oil prices and domestic inflation trends. These factors will help determine whether current pressures translate into additional costs in the coming weeks.