The Kenyan shilling has faced renewed challenges after losing modest gains made earlier in the week as the US dollar rallied sharply on Friday.
However, the shilling has maintained stability, hovering around Ksh129, a level it has held for the past five weeks despite significant global currency movements.
The Central Bank of Kenya (CBK) reported that the shilling closed at Ksh129.19 per US dollar on September 5, barely budging from Ksh129.04 the previous week. This level marks the shilling’s resilience, even as it trades near the five-week high of Ksh129.41 recorded on August 8.
However, economists warn that the shilling could face renewed pressure in the coming weeks, especially as the dollar gained momentum on Friday following US labour market data that revealed lower-than-expected job growth.
Despite this, analysts believe that the Federal Reserve might continue a slow path of interest rate cuts, which could provide a buffer against further depreciation.
The shilling’s strength comes after a volatile July when it plunged to Ksh131.57, following widespread protests that impacted key economic sectors. Financial experts attributed the shilling’s fall to the nationwide unrest, which disrupted trade and tourism, two critical pillars of the economy.
The recent volatility is not unprecedented. In April, the shilling was trading at Ksh133.99 against the dollar, with its weakest point recorded in January at Ksh160 per dollar. This was the lowest the currency had traded in years, prompting concerns about Kenya's economic stability.
However, the shilling has since clawed back, with CBK quoting it at Ksh139 in March, driven by government interventions aimed at stabilising the exchange rate. The CBK’s efforts, alongside increased foreign currency inflows from the agricultural and tourism sectors, have been credited with maintaining the shilling’s recent stability.
On Wednesday, September 4, the shilling strengthened slightly to Ksh128.25/129.25 against the US dollar, reversing some of the earlier week’s losses. Analysts suggested this was due to a muted foreign currency demand from manufacturers and fuel importers, as well as continued investor interest in Kenya’s infrastructure bonds.
Despite the overall stability, some uncertainty remains. The currency is exchanging at Ksh169.40 against the British pound and Ksh142.89 per Euro, a sharp contrast to the Ksh178.85 and Ksh152.32 rates seen earlier this year. These disparities underscore the continuing volatility in the global currency markets, which could spill over into the Kenyan economy.
Traders remain cautiously optimistic, even as external factors such as US interest rate policies continue to impact global currencies. One forex trader commented, "We’re seeing balanced supply and demand for foreign exchange. Offshore flows are coming in for infrastructure bonds, but there is also strong demand from manufacturers. The shilling is stable for now, but external factors could change that."
