The Central Bank of Kenya (CBK) has expressed confidence that the Kenyan Shilling will remain stable despite the United States withdrawing its foreign aid.
The withdrawal of the foreign aid instituted by President Donald Trump last month is expected to reduce dollar inflows into the country, impacting Kenya’s forex reserves. Trump suspended all US foreign aid for three months to allow for an audit.
However, while speaking during a press conference following the Monetary Policy Committee meeting on Thursday, February 6, CBK Governor Kamau Thugge explained that the bank does not expect the Shilling to lose against the dollar.
He projected that the Shilling would remain stable, continuing its eight-month stability. “We don’t see much impact on the exchange rate from the freeze on aid,” Thugge said.
Kenya’s foreign exchange reserves currently stand at USD 9,066 million, or about Ksh1.17 trillion, in the current exchange rates (4.63 months of import cover) and continue to provide adequate cover and a buffer against any short-term shocks in the foreign exchange market.
Thugge further explained that the Shilling has remained stable due to growing diaspora remittances and current accounts.
He warned that the Shilling could only tumble if there is a significant reduction in diaspora remittances or a large increase in oil prices. Both, Thugge said, remain unlikely.
This is despite its projections and review of global oil prices indicating that oil prices could spike due to a probable increase in oil tariffs and the continuing geopolitical tensions.
“The main risks relate to rising tariffs on imports and supply disruptions from the ongoing conflict in the Middle East,” CBK said.
Any spike in oil prices could put pressure on the country’s forex reserves, affecting the exchange rates.
However, Governor Thugge remained optimistic, “We do see our levels of forex reserves remaining fairly strong, and we do see the exchange rate remaining stable.”
The Kenyan Shilling has been trading at Ksh129 against the dollar since August; this is despite other currencies losing ground to the green buck after Trump’s election in November.
Already, the government plans to raise up to Ksh70 billion ($543 million) through the sale of two infrastructure bonds to further raise the dollar reserves.
