Kenyan shilling shrugs off risks to sustain two-year stability around Sh129

Kenyan shilling shrugs off risks to sustain two-year stability around Sh129 - For every shilling sent out, five shillings were sent in. (Photo: Reuters)

The Central Bank of Kenya (CBK) quoted the local currency at Sh129.89 to the dollar on Friday, extending a period of limited movement that began in July 2024 after a sharp recovery from record lows earlier that year.

The Kenyan shilling has traded around the Sh129 mark against the US dollar for 27 months, offering businesses and importers relative stability even as rising global oil prices threaten to increase pressure on the foreign exchange market.

The Central Bank of Kenya (CBK) quoted the local currency at Sh129.89 to the dollar on Friday, extending a period of limited movement that began in July 2024 after a sharp recovery from record lows earlier that year.

Notably, the stability marks a significant turnaround from January 2024, when the shilling traded at about Sh160.8 to the dollar, raising the cost of importing fuel, food, machinery and other goods priced in foreign currency.

The currency's recovery was supported by improved investor confidence following the government's February 2024 Eurobond transaction, which involved issuing a new $1.5 billion bond to buy back most of a $2 billion Eurobond due in June that year.

According to the National Treasury, the transaction eased concerns about the country's ability to meet its external debt obligations.

Experts argue that the subsequent stability has helped businesses plan their dollar-denominated payments with greater certainty, while reducing the risk of sudden increases in the shilling cost of imports and external debt servicing.

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At the height of the currency's weakness, an importer purchasing goods worth $100,000 needed about Sh16.08 million at an exchange rate of Sh160.8 per dollar.

At Sh129.89, the same amount would cost approximately Sh12.99 million, a difference of about Sh4.09 million before other charges.

However, the stable exchange rate has not insulated the economy from external shocks.

Global oil prices have climbed amid tensions in the Middle East, pushing up Kenya's petroleum import costs and prompting fresh increases in domestic pump prices in October.

Higher fuel costs could raise transport, manufacturing and distribution expenses, limiting the extent to which currency stability translates into lower consumer prices.

The CBK has previously attributed the shilling's resilience to foreign exchange inflows, including remittances and agricultural export earnings, alongside improved market conditions.

The bank also maintains foreign reserves to cushion the economy against external shocks, although it does not target a fixed exchange rate.