The Kenya Shilling continues to soar against the USD as local investors dump dollars on bets that the greenback shortage is over.
- When the forex markets closed, the Central Bank of Kenya (CBK) was quoting the exchange rate at KSh 153.2039, up from the KSh 160.0000 range that it had prevailed for the past few weeks.
- Commercial banks quoted the rate at below KSh153.75.
- On Wednesday, the local unit appreciated against the US $ to hit its strongest level since November 2023, reversing all exchange losses in 2024.
The Kenya Shilling has rallied against the greenback since the successful Eurobond. Thursday’s swing is considered the biggest single-day gain in 16 years, as local investors offload US dollars.
“An interesting degree of panic is what’s happening in the FX market as speculators get shocked by Kenyan shilling strength,” Charlie Robertson, Head of Micro Strategy at FIM Partners, told The Kenyan Wall Street on Thursday.
Thursday’s swing forced the CBK, which had said the currency was overvalued in 2023, to intervene to curb currency volatility. In a recent MPC meeting, CBK said that the exchange rate had now overshot the Kenya Shilling’s fair value, opening the door for the regulator to intervene to stabilize it. Dealers maintain that without CBK coming into the market to buy dollars, the Kenya Shilling exchange would have hit the 130 levels because massive forex inflows offshore are anticipated.
“Overall, we view the strengthening as a general increase in the supply of USD skewing the demand and supply dynamics in favour of a Kenya Shilling upswing,” analysts at Standard Investment Bank said on Wednesday, “And of course, the slide is augmented by speculative dollar hoarders selling in panic.”
At 1250 GMT, commercial banks quoted the shilling at 145.00/146.00 to the U.S. dollar, up more than 3% on Wednesday’s closing rate of 150.00/151.00. At one point on Thursday, the Kenya Shilling rallied almost 8% on the day, bid as strong as 139.00 to the U.S. dollar, available data shows.
- Analysts attribute the strong gain to speculative activity following forex inflows into the domestic debt and the resolution of a $2 billion Eurobond maturing in June 2024.
- Earlier this week, Kenya sold a new $1.5 billion Eurobond, maturing in 2031, which it will use to buy back via a tender offer a large chunk of the $2 billion bond due in June.
- The government also floated a KSh 70 billion infrastructure bond, which was oversubscribed with bids worth KSh 288 billion received.
“FIM Partners expects the KES to stabilise soon – and around 150/$ is easy to justify from an economist’s point of view,” Robertson added, “In my view, a little weaker at 155-160/$ would suit Kenya better with a view to shrinking the current account deficit.”
National Treasury PS Dr. Chris Kiptoo has warned forex dealers against speculative attacks on the local unit to eliminate distortions.
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