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Kenya’s Shilling Shows Resilience Amid Central Bank’s Strategic Interventions: What’s The Catch?

BY Steve Biko Wafula · February 16, 2024 10:02 am

Stabilizing Volatility in the Forex Market

In recent developments, Kenya’s Central Bank has actively participated in the foreign exchange market to mitigate volatility. This move comes as the Kenyan shilling experienced its strongest performance since June 2023. The central bank has emphasized its role in smoothing out erratic movements rather than maintaining a specific target level for the currency.

Impressive Rally Amid Foreign Debt Resolution

The shilling’s rally was notably marked by an almost 8% increase in value against the US dollar in a single day, which was influenced by positive foreign inflows into Kenya’s domestic debt market. This uptick is partially attributed to the resolution of a $2 billion Eurobond that matured in June. Such inflows are significant as they suggest growing investor confidence in Kenya’s economic prospects.

Central Bank’s Market Intervention

The Central Bank of Kenya’s intervention followed the shilling’s rally, aiming to prevent an over-appreciation of the currency which could adversely affect the country’s export competitiveness. Despite the bank’s actions, the shilling still recorded gains, trading at 141.00, which is more than 6% above the previous day’s close.

Read Also: Kenyan Shilling Lost 0.5% And 0.4% Against The Japanese Yen And Tanzanian Shilling

Trader Insights on Market Movements

Traders speculate that the central bank’s strategy to purchase dollars was a move to prevent excessive volatility, hinting at a preference for a more stable exchange rate, potentially around the 130 mark. This speculation is based on the understanding that predictable and steady forex rates are beneficial for business planning and economic stability.

The Influence of Offshore Inflows

The acknowledgment by traders that offshore inflows are driving the currency’s strength indicates a broader international interest in Kenya’s financial instruments. Such interest can be a double-edged sword, where on one hand it provides capital for development, while on the other, it can lead to currency appreciation, affecting the trade balance.

Long-term Economic Implications

The central bank’s interventions and the shilling’s performance are key indicators of Kenya’s economic health. The situation underscores the delicate balance the central bank must maintain in fostering growth, controlling inflation, and managing external debt without disrupting the forex market dynamics.

Sustainable Currency Stabilization Efforts

Overall, the Central Bank of Kenya’s efforts to stabilize the shilling point towards a cautious but proactive approach in managing the country’s currency. This reflects a nuanced understanding of the complex interplay between foreign capital flows and domestic economic stability. Moving forward, maintaining such stability will require vigilance and adaptability to global and regional economic trends.

Read Also: Kenyan Shilling Shows Mixed Fortunes Amidst Stock Market Fluctuations

Steve Biko is the CEO OF Soko Directory and the founder of Hidalgo Group of Companies. Steve is currently developing his career in law, finance, entrepreneurship and digital consultancy; and has been implementing consultancy assignments for client organizations comprising of trainings besides capacity building in entrepreneurial matters.He can be reached on: +254 20 510 1124 or Email: info@sokodirectory.com

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