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The Kenyan shilling could weaken in the coming week as oil marketers and importers increase their demand for US dollars. Currency traders expect these payments to put pressure on the local unit, although foreign exchange inflows from charities could cushion the decline.
According to Reuters, businesses need more dollars to settle international purchases, raising concerns about the shilling’s recent stability. Commercial banks quoted the currency at between KSh129.75 and KSh129.95 per dollar on Thursday, October 15, unchanged from the previous week.
Despite the stable quotation, traders warned that stronger dollar demand could push the exchange rate higher. The development comes as Kenya faces rising petroleum import costs and fresh increases in domestic fuel prices.
Rising Fuel Costs Raise Currency Concerns
Oil marketers require US dollars to purchase petroleum products from international suppliers. When the shilling weakens, importers need more local currency to obtain the same amount of dollars.
The pressure could complicate efforts to contain fuel costs if international petroleum prices remain elevated. Importers may face additional expenses when converting dollars into shillings, depending on movements in the exchange rate.
The Energy and Petroleum Regulatory Authority (EPRA) recently increased fuel prices for the period running from October 15 to November 14. In Nairobi, petrol rose by KSh12.93 per litre, diesel by KSh9.90 and kerosene by KSh28.49.
EPRA attributed the increases partly to higher international import costs. The regulator’s latest figures showed that the average landed cost of imported petroleum products increased across all three categories between August and September.
Petrol’s average landed cost rose by 11.81 per cent, from USD874.26 to USD977.55 per cubic metre. Diesel increased by 11.32 per cent, while kerosene recorded a 9.41 per cent rise over the same period.
EPRA explained that international petroleum purchases are denominated in US dollars, which are converted into shillings when calculating local pump prices. Consequently, exchange-rate movements can influence the final prices paid by motorists and households.
CBK Governor Warns About Inflation Risks
Central Bank of Kenya Governor Kamau Thugge has cautioned that higher fuel prices could add to inflationary pressures. However, he said falling food prices might help offset some of the additional costs facing consumers.
“Even if there is an increase in the fuel prices, the food prices have actually been trending downward, so one will still need to wait and see what happens to the food prices, and whether the decline in food prices offsets whatever increase there might be on fuel inflation,” Thugge told Reuters.
His remarks highlight the uncertainty surrounding the overall effect of higher fuel costs on household expenses. The eventual impact will depend partly on whether food prices continue declining enough to balance rising transport and energy costs.
Fuel price increases can also affect businesses that depend heavily on transportation and petroleum-powered operations. Such businesses may face higher distribution and operating expenses, potentially influencing prices across several sectors.
Importers Face Potentially Higher Costs
A weaker shilling could increase the cost of importing goods beyond petroleum products. Businesses purchasing machinery, electronics and industrial raw materials from overseas could require more shillings to pay foreign suppliers.
Companies may absorb some of these additional expenses, depending on their financial position and prevailing market conditions. Others could pass part of the increases to customers through higher prices.
However, the currency outlook remains uncertain because foreign exchange inflows could help support the shilling. Traders cited potential inflows from charities as one factor that might limit its expected decline.
The coming week will therefore be important for businesses monitoring dollar demand and exchange-rate movements. Any sustained weakening could add to import costs, while continued currency stability would help limit additional pressure on businesses and consumers.
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