The Kenyan shilling is expected to maintain stability in the near term boosted by adequate dollar inflows, with the Central Bank of Kenya (CBK) keen on maintaining strong external buffers.
- The Kenyan Shilling has gained 21.5% against the greenback in 2024, becoming the best performing currency globally to trade at 129.20 as quoted by the CBK on Friday.
- The CBK expects gross foreign reserves to accumulate to US$8.9 billion by year end, a US$1.9 billion increase from 2023.
- Kenya’s usable reserves now stand at US$8.5 billion, enough to maintain 4.4 months of import cover boosted by CBK’s efforts to buy excess dollars from the market in a bid to anchor volatility.
“We are fairly comfortable with the FX rate,” CBK Governor Thugge said during an interview on the sidelines of the World Bank and International Monetary Fund (IMF) annual meetings in Washington.
Governor Thugge expressed confidence in the current exchange rate levels, holding that the shilling is at appropriate levels. He added that the reserve accumulation is key to keeping the currency at the current levels.
“We have built strong external buffers and should be able now to address any short-term exogenous shocks,” Dr. Thugge noted. “We will smoothly manage whichever direction the exchange rate is when driven by fundamentals.”
The Rearview Mirror
The shilling has remained stable, oscillating within the KShs 129 mark against the greenback owing to the high dollar inflows streaming in from tea exports and the growing remittances from Kenyans living and working abroad.
The CBK Governor admitted to the aggressive revenue targets fronted in the Finance Bill 2024 that led to deadly protests across the country, compelling President Ruto to drop a week later. He added that social stability and fiscal consolidation should be considered in future IMF funding programs.
“We were overly aggressive with our revenue targets. Given the social disruptions, we now recognize the need for a balance between fiscal consolidation and maintaining social stability.”
In the Wednesday interview, the apex bank governor assured that the budget has been fully financed in the short term, ruling out sooner prospects of going back to international markets for funding.
in February, Kenya successfully refinanced the 2024 Eurobond maturity partially, issuing a US$1.5 billion Eurobond buyback, which attracted dollar denominated inflows, boosting liquidity. According to data tracked by Bloomberg, Kenya’s debt has had returns of 8.5%, surpassing the 7% average for emerging markets.
Kenya is eyeing additional concessional funding from the IMF once the current one is complete in April 2025.
