Kenya shilling gains ground after months of tumbling

Kenya's currency, the shilling, has shown signs of improvement in recent days following the Central Bank's decision to raise the base lending rate by 50 basis points. The shilling has been battling severe depreciation over the past few months, leading to interventions by the Central Bank of Kenya (CBK) to stabilize the currency. Erick Mokaya, Founder and CEO of Mwango Capital, shed light on the recent developments in the currency markets of Kenya. Mokaya highlighted that last year was challenging for the shilling, depreciating by close to 20 percent against the dollar. However, in the first three weeks of this year, the shilling gained around 4 percent, but it has since eased back to almost 1 percent for the year. The current trajectory suggests that the shilling may dip below the 155 shilling per dollar mark. Mokaya attributed this trend to the CBK's efforts to prevent further depreciation. The Central Bank has expressed its commitment to curbing the shilling's decline, with recent remarks from the governor indicating that the currency had overshot the benchmark rate set by the bank. This proactive stance has led to a significant turnaround in the currency markets, with the shilling appreciating from around 165 to nearly 155. The recent positive outlook can also be attributed to Kenya's successful $1.5 billion bond issuance, which will help retire a maturing $2 billion bond due in June. This move is expected to relieve pressure on the country's foreign exchange reserves. Despite the rapid appreciation, Mokaya highlighted that the driving forces behind the shilling's movements are not entirely clear, hinting at a possible corrective phase in the market. Looking ahead, Mokaya anticipates that if the shilling stabilizes and inflation remains subdued, the CBK might maintain rates in their upcoming meeting in April and consider rate cuts in the second half of the year, aligning with global trends. The Federal Reserve's indication of reaching peak interest rates could prompt emerging markets like Kenya to follow suit regarding monetary policy adjustments. While Mokaya clarified that Mwango Capital did not predict the shilling crossing the 200 mark, he acknowledged the underlying concerns in the market regarding the currency's trajectory. The recent ease in the shilling is welcomed, but its sustainability hinges on various factors such as foreign exchange inflows and market dynamics. Importers, who have been grappling with the shilling's volatility, are advised to cautiously monitor the currency at levels around 160 to 170 and adapt their strategies accordingly. Amid the complex economic landscape characterized by bond issuances, international inflows, and pending financial legislation, a clearer picture of the currency's stability is expected to emerge in the coming weeks. The recent developments signal a potential relief for importers, although the path ahead remains uncertain, necessitating vigilance and adaptability in navigating the currency market.