Kenyan Shilling Swings Subside as Central Bank Curbs Strength
Interventions by Kenya’s central bank are suppressing volatility in the shilling as officials try to keep the best-performing currency in Africa from getting too strong.
Waves of foreign cash from tourism to tea exports have helped offset negative sentiment following weeks of anti-government protests and a delayed International Monetary Fund loan. The currency has rebounded almost 30% from a January low, when investors worried that Kenya would default on its dollar debt.
For much of August and September, the currency has remained in a tight band between 128 and 130 shillings.
“The central bank is wisely resisting further appreciation of the shilling, because they want to see continued improvement on the current-account,” said Charlie Robertson, head of macro strategy at FIM Partners. “Intervening is helpful to build FX reserves, which will put a floor under Kenya’s credit ratings.”
Reserves have climbed in the past four weeks to $8.03 billion, sufficient to cover 4.1 months of imports, Central Bank of Kenya data show. A surprise interest rate cut in August, the first in four years for the East African nation, has also helped suppress the currency’s gains.
Strong dollar inflows from a range of sources, including tourism, tea and coffee exports, are giving the shilling a boost, as well as the return of foreign investors to the Nairobi Securities Exchange. The inflows have helped narrow Kenya’s current-account deficit.
“We haven’t seen any catalyst that could see the shilling come out of this range-bound trading,” said Churchill Ogutu, an economist at IC Asset Managers.
