The Kenyan shilling has stood its ground despite a powerful rally by the US dollar, maintaining stability even as the greenbuck recorded its best performance in months.
With the US dollar gaining ground for five straight weeks, many expected the Kenyan currency to drop. Yet, the shilling has remained steady, hovering between Ksh128 and Ksh130 against the dollar, showing little sign of movement despite the global currency shakeup.
The shilling closed the week trading at Ksh129.19 according to data from the Central Bank of Kenya (CBK). This is good news for Kenyans since it could signal a positive shift for the economy, particularly in lowering the price of raw materials and finished goods, which has been a significant burden for businesses across the country.
If the shilling sustains its current course, Kenya could see a drop in the cost of key imports like fuel and cooking oil, providing much-needed relief to consumers who have been struggling with high inflation rates.
A man counting several one thousand Kenyan shillings bills.
Photo
Wilberforce Okwiri
The shilling’s resilience can be traced to strategic interventions by the Central Bank of Kenya (CBK). By carefully managing the currency’s fluctuations, the CBK has ensured the shilling does not appreciate too much, even in the face of strong foreign inflows from sectors like tourism and agricultural exports.
The bank’s efforts to suppress volatility have helped build foreign reserves, which are now at $8.19 billion, providing 4.2 months of import cover.
Analysts point to these foreign inflows as a critical factor. Waves of cash from Kenya’s tea and coffee exports, as well as increased foreign investor interest in the Nairobi Securities Exchange, have helped buffer the shilling against the surging US dollar. This has been a crucial counterbalance, especially after recent anti-government protests and concerns over Kenya’s debt.
Economists like Churchill Ogutu from IC Asset Managers are also taking note. “We haven’t seen any catalyst that could see the shilling come out of this range-bound trading,” Ogutu remarked. The shilling has remained within a tight band between Ksh128 and Ksh130, defying expectations of wider fluctuations.
Another factor contributing to the shilling’s stability has been the sharp rise in foreign reserves. Over the past six weeks, reserves have increased steadily, now sitting at their highest level in nearly two years.
This uptick began in September when the reserves were at $7.5 billion and have since risen to $8.19 billion. This steady growth has given the CBK the flexibility it needs to manage the shilling without significant intervention in the currency markets.
Kenya’s current-account deficit has also narrowed, thanks in large part to these foreign inflows. Tourism, which has bounced back after the pandemic, and strong export revenues from tea and coffee, have brought in crucial dollars, keeping the deficit in check. According to Churchill Ogutu, economist at IC Asset Managers, there hasn’t been any major catalyst that would push the shilling out of its current trading range.
The Federal Reserve’s actions in the US have played their part too. The dollar surged in September following a surprisingly strong jobs report, leading many to believe the Fed would hold off on further interest rate cuts. While the US dollar has thrived, the Kenyan shilling has held firm, resisting the pressures that usually come with such global movements.
This stability comes as a relief to many in Kenya, particularly as inflationary pressures have eased in recent months. The shilling’s steadiness has helped to shield consumers from the worst effects of rising prices. Had the currency weakened in line with the US dollar’s surge, the cost of imports would have spiked, adding to the burden on ordinary Kenyans.
A picture of Yokohama Star cargo ship docked at the Port of Mombasa.
Photo
KPA
