Foreign currency deposits in local banks hit a new record-high in March as businesses held back on activity because of the high cost of production.
Fresh data by the Kenya National Bureau of Statistics (KNBS) shows that the value of foreign currencies deposited in banks stood at Sh811.08 billion in April, shattering the previous all-time high of Sh804.31 billion in February.
The huge deposits point to firms or individuals either rushing to keep foreign currency for future use or hedging against currency fluctuations.
The shilling has been under pressure from the dollar for months now, depreciating to record lows amid sharp import bills for items such as petroleum products, steel, edible oil, and food grains.
On Tuesday, the indicative rate of the Central Bank of Kenya (CBK) showed that the shilling traded at 117.95 against the dollar, meaning that the local currency has depreciated by 4.25 per cent against the greenback since January this year alone.
The surge may point to companies holding back on spending, worried about high inflation and the rising cost of production.
A May CBK survey of company chief executives revealed that business activity remained mixed in the second quarter of this year.
“The survey sought CEOs perceptions on business activity in the second quarter of 2022 compared to the first quarter of 2022. While businesses are gradually recovering from the effects of the pandemic, recovery has been moderated by concerns over inflation and the rising cost of production,” CBK said then.
The country’s inflation rate hit a 58-month high in June—a development KNBS linked to increases in a jump in the price of essential items like cooking oil, food, fuel, and soap, squeezing household budgets and demand for goods and services.
The depreciation recently triggered uproar in the money market amid suspected panic purchases by some big importers and industrialists.
Although some industrialists under their lobby the Kenya Association of Manufacturers had claimed a shortage of the greenback, the CBK maintained that the pressure on local currency was a result of increased demand by importers and corporates.