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Reason behind shilling's sharp rise & why Kenyans are rushing to dispose dollars

A source from a local bank confirmed to the news desk that they had witnessed an increase in the number of Kenyans disposing dollars, due to speculation that the dollar would continue to lose against the shilling.

CBK Governor Kamau Thugge during a past media interview

In recent days, the Kenyan shilling has seen an unprecedented rally against the US dollar, reaching its first peak since the mid-2023.

This surge has been attributed to a combination of strategic interventions by the Central Bank of Kenya (CBK) and a robust influx of foreign investments, particularly in Kenyan domestic debt securities.

The CBK, adhering to its policy of intervening in the foreign exchange market only to curb undue volatility, made a significant move.

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By purchasing dollars, the bank aimed to slow down the shilling's rapid appreciation, which, at one point, saw an almost 8% increase in its value against the dollar, showcasing a strength not seen since June 2023.

This intervention was a response to the shilling's sharp rise, which was propelled by huge foreign inflows into Kenyan bonds and the successful resolution of a looming $2 billion Eurobond due in June.

A source from a local bank confirmed to the news desk that they had witnessed an increase in the number of Kenyans disposing dollars, due to speculation that the dollar would continue to lose against the shilling.

Some banks are buying dollars as low as Sh130 while selling as high as Sh153.

Standard Investment Bank, also supported views that the influx of dollars following the fresh eurobond and infrastructure bond have tilted the balance in favour of the shilling by supplying more dollars in the market.

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"Overall, we view the strengthening as a general increase in the supply of USD, skewing the demand and supply dynamics in favour of a KES upswing. And of course the slide is augmented by speculative dollar hoarders selling in panic," the bank said in a statement.

Overall, we view the strengthening as a general increase in the supply of USD skewing the demand and supply dynamics in favour of a KES upswing. And of course the slide is augmented by speculative dollar hoarders selling in panic.

Adding to the fiscal landscape's intrigue is Kenya's issuance of a new $1.5 billion Eurobond set to mature in 2031.

This strategic move is part of a broader financial plan to manage existing debts, including a tender offer aimed at repurchasing a significant portion of the $2 billion bond maturing in June.

Furthermore, the government's sale of a Sh70 billion infrastructure bond which attracted over Sh288 billion in bids (a 412% subscription rate), highlighted the strong confidence of offshore investors in Kenya's economic prospects.

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This financial dynamism, characterized by the CBK's adept market interventions and the surge in foreign investment, underscores Kenya's growing stature in the global financial arena.

The Shilling's strength, supported by the central bank's policies and the allure of Kenya's debt instruments to international investors, reflects a delicate approach to financial management and economic growth.

As Kenya continues to navigate its fiscal challenges, the CBK's role in ensuring stability and confidence in the Kenyan shilling remains pivotal, marking a period of significant financial resilience and strategic economic planning.

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