The hilling is projected to weaken further amid strong dollar demand by traders. Some commercial banks were yesterday selling one US dollar for up to Sh130 in what may turn out to be a price stability risk.

Data from commercial banks shows that dollars are selling for between Sh127 at Bank of Africa and Sh128 at I&M Bank and Sh130 at Stanbic Bank. At the same time, however, the Central Bank of Kenya website puts the average exchange rate at Sh121.  The regulator arrives at its price by getting an industry average but that average has in recent months been far removed from the market price.

The exchange had in the recent past stabilised at Sh120 before losing ground to Sh121 but the sudden drop to over Sh127 is a steep fall that could reverse recent price corrections in import costs.

Exchange rate movements are important to Kenya because the country imports most of her food, raw material costs and oil.

Data from the central bank of Kenya shows that the country’s import cover is barely above the country’s statutory limit of four months of import cover.

“The usable foreign exchange reserves remained adequate at $7,286 million (4.11 months of import cover) as at October 27. This meets the CBK’s statutory requirement to endeavour to maintain at least 4 months of import cover,” CBK said.

This means the regulator can no longer engage in market interventions to support the currency since it risks going below the statutory requirement.

Most bank officials remain cagey, avoiding commenting on the mattergiven the level of scrutiny the CBK has put on the issue.