Kenyan shilling comes under heavy pressure ahead of Presidential elections

The Kenyan shilling has come under heavy pressure in the past one week raising fears it may trigger inflation if the trend continues.

Since last week, companies and individuals have been stockpiling dollars ahead of the October 26 fresh Presidential election, forcing the central bank to intervene by cushioning the shilling against the sale of dollars and avoid volatility in the local currency market as political temperatures hot up.

“There’s a preference among corporate and some retail clients to hold their cash in dollars and that’s putting the shilling under pressure,” said a trader at a local commercial bank.

Companies and investors usually hold their cash in dollars ahead of elections to cushion them against unexpected eventualities since the dollar is stable compared to the local currency.

The Central Bank of Kenya (CBK) sold dollars in the forex market early on Monday after the shilling came under increased pressure as companies increased their demand for dollars and foreign investors exited the stock exchange.

“We expect the trend to continue and depending on the CBK interventions and political development, the shilling could weaken further,” The trader said, adding that the persistent dollar sale was eroding the central bank’s foreign exchange reserves.

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On Tuesday the dollar was selling at 103.7961 against the shilling and market analysis warn the dollar could rise even higher depending on how the Presidential election turns out.

Regionally, local currencies are stable; the rand is selling at 7.5727, Ghanian cedi is selling at 0.23 and Nigerian Naira sells at 0.003 against the dollar.

Kenya has been in a state of high political uncertainty since the August 8th presidential elections were nullified by the Supreme Court.

In a bid to calm down investors and market in general, CBK Governor Dr. Patrick Njoroge last week came out to assure investors that the country was stable and stronger despite the ongoing political crisis.

Should the shilling continue slipping down however, it could trigger inflation forcing ordinary Kenyans to spend more as the cost of living shoots up.