Kenya's shilling weakens amid strong demand for dollars

The steady weakening of Kenya's shilling continued on Wednesday, propelled rise of dollar demand from the energy sector. 

The shilling has lost 4.8 percent of its value against the dollar this year, weighed down by a gaping current account deficit and a firmer greenback. A spate of militant attacks have hobbled Kenya's key tourism industry, a major source of foreign exchange, while uneven rains have hurt the horticulture sector.

At 0730 GMT, commercial banks quoted the shilling at 95.10/20 to the dollar, compared to 95.05/15 at Tuesday's close, its lowest point since November 2011.

Corporate demand for dollars across the board, but especially from energy firms, has "added fuel to the flames," said Chris Muiga, a trader at the National Bank of Kenya, adding  the currency could hit the 98 level by June.

“There are structural gaps in the economy and it can't be addressed in the short term," he said.

Duncan Kinuthia, head of trading at Commercial Bank of Africa, said further weakening could be expected after the shilling passed the technical support level of 95.0 on Tuesday.

"I don't see a favourable outlook," he said.

Inflation rose to 7.08 percent last month, its highest since August, adding to pressure on the shilling. 

The central bank intervened three times last month, selling dollars to prop up the local currency.