How the Kenyan shilling gained ground against the dollar, and whether it will last

The continuous rally of the Kenya shilling over the last week has signalled a significant tide turn for the currency which was expected to shed more value this year after the shilling hit an all-time high of over 160 against the US dollar.

A trajectory that now seems to change with the inflow of dollar-denominated support from the International Monetary Fund (IMF) which disbursed USD 684 million on January 18, followed by another disbursement from the Trade Development Bank on January 24 to the tune of USD 385 million.

The Africa Development Banks set to further increase dollar liquidity in the country by an additional disbursement of USD 88 million.

It is these funds that experts now say have given the shilling a shot in the arm against the dollar.

The shilling, which stood at Ksh.161 against the US dollar just three days ago, has regained value to close the day at an average of Ksh.153 to the dollar on Thursday, indicating a significant gain that experts are now attributing to a lack of incentive for investors to hold on to the green buck.

Rufas Kamau, lead market analyst at FXPesa, said: “For any, let's say importer, within the country who has been suffering to get dollars, now they’re confident that they will get dollars in the market over the next couple of months...so there is no incentive to keep hoarding the dollar...as a result we have seen a lot of panic selling, but I don’t think this will have a direct impact on the economy or the tough business environment that businesses are going through in the country.

Treasury Principal Secretary Dr. Chris Kiptoo, on his part, noted: “As a result of this Eurobond problem, the issue around the uncertainty of the exchange rate has been addressed...there is now confidence and you can see the shilling is beginning to improve...as of this morning I'm told it was trading around 151.”

The panic sell of the US dollar seen in the markets, however, is expected to see the Kenyan shilling gain further against the dollar.

Experts are projecting that the shilling might hold steady at 140 to the dollar in the second and third quarter, but they remain cautious that the shilling's rally may not last as long as the macro-economic fundamentals remain the same.

“From what we are seeing it seems likely to be short term and once the equation is back in play then we’ll see the economy naturally scooping more dollars in imports...and since we're not doing anything much on exports then as a result we could be seeing the dollar tracking back against the shilling,” Kamau stated.

According to PS Kiptoo, Kenyans hoarding the dollar should take advantage of the current window to sell off their dollar or risk losing them even as he remains bullish that the shilling will continue to rally against the dollar.

“I want to encourage Kenyans, if you’re holding any dollar because your fear the Eurobond, please note that now the risk of failure to settle the Eurobond is gone and so you need to get back to business sell your dollars and get back to business don’t do any speculation anymore,” he added.

The strengthening of the shilling comes barely a week after the Central Bank of Kenya Governor Kamau Thugge had indicated that the CBK would intervene to minimize the volatility that had seen the shilling hit an all-time low against the dollar and other major currencies.

“It is my view that the exchange rate has overshot the equilibrium rate so there could be scope for the Central Bank to support the exchange rate going forward,” said the CBK boss.