Nairobi — The dollar crisis being experienced in the country could be attributed to Kenya’s high dependence on imports whose costs have risen drastically, Kenya Bankers Association Chairman John Gachora has said.
Gachora who also serves as NCBA Group MD noted that the current dollar situation should be termed as a demand-supply gap in the FX market as the supply of dollars remains on track with historical trends.
“It is the demand that has risen significantly because the costs of goods globally have risen dramatically” said Gachora adding that if a trader used to get USD100,000 to import goods in the past, now they need USD300,000.
Further, he noted that the upcoming August 9 election could also be a factor in the dollar crisis, as historically right before elections there is usually some capital aversion whereby investors wait before they make their investments.
“Obviously, there is also a bit more aversion this year due to the fact that dollar rates in the US are rising and the Russia Ukraine war has also created some aversion to emerging markets investments,” he said.
The United States Federal Reserve hiked interest rates by 75 basis points, the highest since 1994.
The move comes after the country’s inflation hit a 40-year high of 8.6 percent in May.
“Even if interbank trading was opened, we still can’t resolve the dollar demand-supply gap in the FX market. We now need to make it more valuable to hold the shilling vis-a-vis the dollar,” said Gachora.
His remarks echo Central Bank Governor Patrick Njoroge who has maintained that the monthly supply of dollars in the market exceeds demand.
“If you have a sector that is importing USD90 million or USD100 million, that is nowhere near the USD2 billion that we are putting out,” Njoroge said.
The National Treasury has also maintained there are enough dollars, noting there is an artificial shortage that has been created by alarmist comments by manufacturers led by their lobby, the Kenya Association of Manufacturers.
The Kenyan currency has suffered the strengthening of the US dollar which has appreciated by 6.8 percent since the start of the year, according to analysts.
On Thursday, the shilling traded at Sh117.75 against the greenback.