- On Tuesday, December 19, the Central Bank of Kenya quoted the shilling at 154.16 against the United States (US) dollar
- FX Pesa's Samson Mzera explained that there was a potential shift in the local currency's trajectory due to a reduction in the strength of the dollar
- The forex expert said the imminent IMF financing would address existing financial shortfalls, easing the strain on domestic borrowing
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TUKO.co.ke journalist Japhet Ruto brings over eight years of experience in financial, business, and technology reporting, offering deep insights into Kenyan and global economic trends.
The Kenyan shilling could be stabilising after more than a year of free fall against the United States (US) dollar.
On Tuesday, December 19, the Central Bank of Kenya quoted the shilling at 154.16 against the dollar, up from 153.78 on Monday, December 18.
In an exclusive interview with TUKO.co.ke, FX Pesa's education partner Samson Mzera explained that there was a potential shift in the local currency's trajectory due to a reduction in the dollar's strength.
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Another development was the International Monetary Fund's (IMF) approval for an additional $939 million (KSh 144.92 billion) in financing for Kenya, which, according to Mzera, will address existing financial shortfalls, easing the strain on domestic borrowing and fostering increased investor confidence.
"In November 2023, the shilling experienced its most gradual depreciation since July 2023, primarily attributed to increased positive sentiment from external funding commitments by the International Monetary Fund and a reduction in the strength of the dollar. Despite a 1.6% depreciation during November, slightly higher than the observed 1.5% in July, there are signs of emerging stability," Mzera noted.
What shows KSh has stabilised?
Mzera said the positive momentum was reflected in the 7% rise of the NSE All-Share Index since the November 6 lows, driven by gains in banking stocks and Safaricom.
Additionally, the reduced yield on the Kenyan $2 billion (KSh 308.5 billion) Eurobond signals a gradual return of confidence in the market.
"Internationally, there is anticipation among traders for the US Federal Reserve to start easing interest rates, with data from the Chicago Mercantile Exchange FEDWatch Tool indicating a high probability of a rate cut in May 2024 at 75% and a cut in June 2024 at 93%. Softening inflation figures for October and November contribute to this expectation," the forex expert said.
He noted that the decline in the US dollar index by 3.35% from its October 3 peak indicates strength in major currencies like the Euro and Yen against it.
"Furthermore, the US 10-year yield has retreated to 4.24% from its October high of 5.1%. This international trend is anticipated to have a positive spillover effect, alleviating pressure on other currencies, including the Kenyan shilling."
Why CBK raised the base lending rate
The CBK increased the base lending rate to 12.5%, up from 10.5% on Tuesday, December 5.
CBK Monetary Policy Committee (MPC) adjusted the monetary policy to address pressure on the Kenya shilling and mitigate the second-round effect of global commodity prices.
The committee chaired by CBK governor Kamau Thugge said it expects inflation to be further reduced to 5% mid-point of the target range.
"This will ensure that inflationary expectations remain anchored while setting inflation on a firm downward path towards the 5% mid-point of the target range. Therefore, the MPC decided to raise the Central Bank Rate (CBR) to 12.5%," said Thugge.
Mzera opined that the decision reflected a proactive stance to address economic challenges associated with currency depreciation and aimed to restore stability in the face of inflationary pressures.
"The situation remains dynamic, and stakeholders are closely watching the evolving economic landscape for further developments," he added.
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