Kenyan Shilling Surges Against Dollar, Signals Strong Investor Sentiment

Yesterday, the Kenyan shilling experienced its most significant intra-day increase against the US dollar in 12 years.

The local currency has experienced an unforeseen surge in value due to a sudden spike in investor confidence. This increase is a direct consequence of a substantial influx of funds used to repay a $2 billion Eurobond. Consequently, the currency has reached its highest point since November of the previous year, successfully recovering from all the losses it had incurred thus far in the current year. Among the banks under observation in the country, Equity Bank reported a dollar exchange rate of Sh153.75, while KCB had the highest rate at Sh157.5. Forex bureaus were selling the dollar at prices ranging from Sh152 to Sh157. On Tuesday, the CBK established the exchange rate at Sh156.7 to the US dollar.

The anticipated appreciation in the value of the Kenyan shilling is predicted to bring down the price of imported goods. Importers will need to use fewer shillings to buy the same amount of products. As for the government, the stronger shilling will lead to decreased debt service expenses. The National Treasury has estimated that a one-unit change in the currency will have an impact of Sh40 billion on debt service costs. Due to the shilling's gain of Sh3.62 against the US dollar in the week leading up to Tuesday, Kenya's debt service costs have been reduced by Sh144.

Meanwhile, holders and earners of US dollars have experienced paper losses of Sh100,000 over a span of seven days. This decline in value has caused holdings/earnings of $10,000 to fall from Sh1.6 million to Sh1.5 million. Kenya's move to buy back some of its Sh313 billion ($2 billion) Eurobond notes has eased investor worries and improved the performance of the shilling. Kenya has recently undertaken a buyback and also issued a new Eurobond to raise a significant amount of money. The funds from the Eurobond will be used to cover the expenses of the buyback. This move has reassured investors and is expected to prevent any negative effects on foreign portfolio flows. The results of the buyback will be disclosed on Friday.

The infusion of money into the local market is evident through the significant amount of capital returned to the country. This is especially evident in the recent offers made for the February auction of infrastructure bonds, which wrapped up yesterday. The auction effectively yielded Sh240.9 billion for the government's treasury. Standard Investment Bank Senior Research Associate Stellar Swakei stated yesterday that the rise in the availability of dollars is primarily driven by sentiment. This comes after the Eurobond buyback, which was recognized by S&P Global as a distressed action.