The shilling has climbed to a 15-month high against the dollar, backed by inflows from agriculture exports amid reduced demand for dollars among importers.
The Central Bank of Kenya (CBK) quoted the exchange rate at an average of Sh128.66 on Friday, a level last seen on March 8, 2023.
Since January, the CBK has used the actual traded rates in the interbank market to determine the official rate, improving the alignment of the official rate with the market.
A spot-check on several commercial banks at the end of the week showed that they were selling dollars to retail clients at between Sh130.65 and Sh131.60, and buying the same at between Sh125 and Sh126.60.
Equity Group quoted the dollar at an average of Sh125.50 buying and 131.50 selling on its website on Friday afternoon, while I&M Group quoted it at Sh126.60/131.60.
NCBA Group’s dollar quote was Sh125.00 buying and Sh131.00 selling, while Stanbic Bank Kenya was buying dollars at an average of Sh125.65 and selling at Sh130.65.
“We have seen some inflows during the week from tea exports. The market’s sentiment around the shilling has also been positive due to expected loan inflows from the World Bank, and the early settlement of the Eurobond that was to fall due this month.” said a commercial bank forex dealer.
The World Bank last month approved a Sh1368 billion loan to Kenya under the Fiscal Sustainability and Inclusive Green Growth Development Programme Operation (DPO).
The proceeds of this loan will bolster the CBK’s official forex reserves—when it buys the dollars from the National Treasury—and thus hand the monetary regulator enhanced muscle to defend the shilling from volatility.
The CBK has also pointed to the tightening of monetary policy this year as a contributor to the shilling’s gains against the dollar.
In his briefing after the June 5 monetary policy committee meeting, CBK governor Kamau Thugge said that this has helped to improve investment inflows into the country,
“This strengthening reflects increased inflows of foreign exchange, the impact of the monetary policy tightening that the CBK has undertaken, the impact of the recent reforms in the foreign exchange market, and the impact of the buyback of the June 2024 Eurobond that we did in February,” said Dr Thugge.
An increase in diaspora remittances has also backed the shilling. In the first four months of the year, remittances grew by 20 percent to $1.6 billion (Sh205.8 billion), compared to $1.34 billion (Sh172.4 billion) in the corresponding period in 2023.
Since the beginning of the year, the shilling has gained by 17 percent against the dollar, making it the best-performing African currency in the period versus the greenback.
This has had the effect of lowering the cost of Kenyan imports, but also lowering earnings for exporters who get paid in dollars for their overseas sales.
