The Kenyan shilling has rallied to a six-month high on interventions by the Central Bank of Kenya (CBK), which has stepped in to rein in the recent depreciation trend.
According to sources who spoke to this publication on condition of anonymity, the apex bank sold dollars to the market last week, easing demand for the greenback from import traders who increased their orders at the end of February.
The CBK quoted the local unit at Sh129.15 at the end of trading on Friday last week, the highest level since August 29, 2024, when the shilling traded at Sh129.17.
The apex bank’s official reserves, meanwhile, fell slightly last week to Sh1.16 trillion ($9.057 billion) from Sh1.19 trillion ($9.256 billion), mirroring part of the dollar outflows from the CBK’s holdings.
Net sales of dollars by the CBK reverses recent dollar purchases made by the apex bank to manage volatility in the local unit as the economy saw increased dollar inflows, including from the recent infrastructure bond.
The National Treasury highlighted the net dollar purchases by the CBK last month, noting the local unit would be trading at a much higher level in the absence of the apex bank’s intervention.
“The shilling has appreciated from a low of Sh160 to now Sh129 per US dollar. The central bank has been buying dollars over the same period. You can imagine if it was not going to the market to buy, the shilling would have been stronger, perhaps trading at Sh100 per dollar,” Treasury Principal Secretary Dr Chris Kiptoo said last month.
CBK interventions in the exchange rate have helped keep the local currency in a tight band between the Sh129 and Sh130 mark for the past six months.
The apex bank exchange rate policy states that it participates in the foreign exchange market in times of volatility by buying or selling foreign exchange to stabilise the market.
The interventions are aimed at ensuring that the local unit does not depreciate too fast or strengthen rapidly in a short period of time.
The CBK closely monitors the exchange rate, irrespective of the direction of movement, with the primary objective of maintaining low levels of volatility over time.
CBK has been seeking to restore calm and stability to the exchange rate after it was battered in early 2024 by investor fears over the country’s ability to repay a Sh258.3 billion ($2 billion) Eurobond that was due to mature in June.
Other interventions by the CBK have included allowing an electronic trading system for interbank foreign exchange deals, the unification of rates quoted by the apex and commercial banks, and lowering the minimum transactions recorded as forex interbank deal from Sh64.5 million ($500,000) to Sh12.9 million ($100,000).
Recent interventions have nevertheless been limited to minimising volatility after the shilling found respite from the resolution of the June 2024 Eurobond redemption.
Market analysts have described the recent interventions as fair, given the importance of cushioning the local exchange rate from additional uncertainty and volatility.
“The intervention has been necessary as the appreciation/depreciation swings would be too much,” noted a market participant.
