By John Ikani
The Kenyan shilling is on a roll, reaching a 15-month high against the US dollar.
This surge is fueled by a combination of factors, including strong agricultural exports and reduced demand for dollars by importers.
The currency is currently trading around 128 shillings to the dollar, a level last seen in March 2023.
This significant gain marks a turnaround from a period of decline experienced by the shilling in the previous year.
A report from the East African attributed the shilling’s strength to inflows generated from agricultural exports, coupled with a decrease in dollar demand from importers.
Notably, the Central Bank of Kenya (CBK) has adopted a more transparent approach since January, basing the official exchange rate on actual interbank market transactions.
This move ensures the official rate reflects real market conditions more accurately.
“We’ve seen positive inflows this week from tea exports,” commented a forex dealer at a Kenyan commercial bank.
“Market sentiment towards the shilling is also buoyed by anticipated loan inflows from the World Bank and the early settlement of a Eurobond that was due this month.”
The Central Bank’s Governor, Kamau Thugge, further explained that tighter monetary policies have also contributed to the shilling’s appreciation, attracting investments into the country.
Another factor bolstering the shilling is the rise in diaspora remittances.
In the first four months of 2024, remittances jumped by 20% to $1.6 billion compared to the same period in 2023.
Kenyan Shilling’s Stellar Performance Throughout 2024
The Kenyan shilling has been on a remarkable run since the beginning of the year.
In April, the World Bank recognized it as the top-performing currency in Sub-Saharan Africa. This recognition stemmed from the correlation between the shilling’s appreciation and the CBK’s decision to raise the base lending rate.
This stellar performance follows the impressive 12-year high achieved by the shilling in February. This resurgence was fueled by a surge in investor confidence, triggered by substantial government inflows used to settle the $2 billion Eurobond.
At the time, some commercial banks were trading the shilling below Sh153.75, marking its strongest position since November 2023. This effectively erased all currency losses incurred during the previous year.
Earlier in February, Kenyan banks quoted the shilling at no higher than Sh164.50 per dollar. January also saw a positive development, with the shilling appreciating by 0.73% against the US dollar. This 160.19 to 161.36 gain marked the first such increase in over 3 years.
