Cost of living crisis escalates as shilling tumbles to record low

Denominations of Kenyan Currency. [Getty Images] A weakening shilling is causing pain to importers and consumers across the country, hindering the government's efforts to rein in the stubborn cost of living. Kenyans are forking out more to purchase basic commodities as the shilling continues to weaken due to external pressures. The local currency hit an all-time low against the dollar yesterday, signalling inflation and higher cost of imported goods and setting up the country for higher cost of electricity and debt servicing distress. According to Central Bank of Kenya (CBK) data, the shilling exchanged at an average of 143.4441 on Wednesday against the dollar - a record low. The depreciation now threatens to pile fresh pressure on the prices of essential commodities, which have stoked public anger. The financial hardships are squeezing consumers hard, posing an economic and political problem for President William Ruto's administration, which is now almost a year into its five-year reign. CBK Governor Kamau Thugge yesterday acknowledged the weakened currency is likely to pose a "challenge" in efforts to bring down the cost of living, but exuded optimism that the pressure would ease. "Obviously, when the shilling weakens, then imported items also become expensive. And that does give us a challenge on on the inflation front," he said in response to The Standard queries during the post-Monetary Policy Committee (MPC) meeting briefing with journalists in Nairobi. "But having said that, the inflation now is within our range. It's now 7.3 per cent despite the depreciation that we have experienced with the shilling and so...it does not mean that we cannot address the inflation issue, as we have now been able to bring the inflation rates to within the our operating range." The MPC spared borrowers higher cost of loans after it retained the benchmark lending rate at 10.50 per cent during its meeting on Wednesday. Food inflation In a statement following the meeting, MPC said the current monetary policy stance had reduced the threat of money-driven inflation. Overall inflationdeclined to 7.3 per cent in July 2023 from 7.9 per cent in June, driven by lower food and non-food non-fuel inflation. The inflation rate returned to the target range of between 2.5 per cent and 7.5 per cent. "The MPC noted that inflation is already within the target band and is expected to decline further as food inflation is expected to come down. "The committee also noted that inflationary pressures had eased as non-food non-fuel inflation declined," said the statement. The committee further noted that the impact of the tightening of monetary policy in June 2023 to anchor inflationary expectations was still transmitting in the economy. "In view of these developments, the MPC decided to retain the Central Bank Rate at 10.50 per cent." Dr Thugge yesterday predicted less pressure on the shilling going forward, especially as the US is seen to end its cycle of interest rates tightening and Kenya's forex reserves build up on expected receipts. Central Banks around the world have sought to stabilise their currencies and defend their economies against the US Federal Reserve's rapid interest rate increases, which have tilted the field in favour of the dollar. Their efforts highlight both the interconnected nature of the global financial system and its vulnerabilities. "I think going forward, we do expect as I said, the current account is improving, the balance of payments will be in surplus and and I think now also with potentially the pausing of raising of interest rates by the US, we should see perhaps less pressure on the shilling. "And so we don't really see the weakening of the shilling being a major challenge in terms of us addressing the inflation rate." Kenyans already face a record hit to living standards after the courts last month paved the way for the implementation of the controversial Finance Act, 2023, bringing more pain for consumers at a time inflation has eroded incomes and purchasing power has been dented. A weak shilling is harmful to Kenya, given that the country's economy is driven by imports. CBK says it does not seek to influence the direction of the exchange rate but only steps in to smooth out volatility.

Cost of living crisis escalates as shilling tumbles to record low

Get Full Access for Ksh299/Week.

Related Topics

Popular this week

Latest Stories

The Standard Insider

Digger Classified

GET OUR NEWSLETTER

CONNECT WITH US

FOR THE LATEST JOB ADVERTS

DIGGER JOBS

Digger Motors

Digger Real Estate

Cost of living crisis escalates as shilling tumbles to record low

Get Full Access for Ksh299/Week.

Related Topics

Popular this week

Latest Stories

The Standard Insider

Digger Classified

GET OUR NEWSLETTER

CONNECT WITH US

FOR THE LATEST JOB ADVERTS