Kenya to prop up shilling with IMF loan

by Elayne Wangalwa 0

Kenya might draw funds from the precautionary loan it received from the International Monetary Fund (IMF) earlier in the year.

According to local newspaper, Business Daily, the Kenyan government wants to prop up the shilling which has been performing dismally against the dollar.

(READ MORE: Kenya’s shilling hits 3-year low, shares rise)

The shilling which opened at 96.46 buying and 96.63 selling on Wednesday has already reached an intra-high level of 96.90 this week.

During the beginning of the year, the IMF approved a 688.3 million US dollar, emergency loan for Kenya. The IMF signed the one-year arrangement of 497.1 million US dollar Stand-By Arrangement and a 191.2 million US dollar Stand-By Credit Facility.

East Africa’s biggest economy requested for an emergency loan in order to respond to looming economic shocks.

The East African country’s taking of the precautionary loan is part of the measures the government is undertaking to avert a repetition of the shocks that hit its economy less than three years ago.

In 2011, the Central Bank of Kenya (CBK) was unable to tackle internal and external shocks shaking the economy and pushing the currency to its highest mark of 107 Kenyan shillings against the dollar.

According to reports, the government will decide in the coming months on whether they will use the loan. However, analysts say this move may not weather the current situation as there are several factors affecting the shilling.

“I think the shilling will continue to weaken. I do not know how much the central bank intends to use from the precautionary loan but the fundamentals are on the wall. When you put all these things together like for instance I hear the country’s oil import for May will be the highest, then the shilling will continue to weaken,” Chris Muiga, head of trading at National Bank of Kenya (NBK) told

Since last month, the shilling has been under pressure against the dollar largely driven by the strengthening of the US currency in the global market. Nonetheless, the CBK has implied on several occasions that it has adequate foreign exchange reserves to prevent any further weakening of the shilling.

The central bank has sold an undisclosed amount of dollars during this period after the shilling touched a new three year low.

“The bank is closely monitoring developments in the foreign exchange market and will continue to use appropriate monetary policy instruments to minimize volatility of the Kenya shilling exchange,” CBK said last month on developments of the foreign exchange market.

“The bank has adequate foreign exchange reserves in excess of 4.5 months of imports to cushion the exchange rate against these short-term shocks and volatility.”