Shifting Kenyan Shilling Dynamics

By Teddy Irungu

The recent issuance of the Kenyan 7-year Eurobond, which garnered $1.5 billion at a 9.75% interest rate and a 10.375% yield, has alleviated concerns in the market regarding a potential default by the Kenyan government on its $2 billion Eurobond repayment due in June 2024. This issuance aims to repurchase the existing June 2024 bond, aligning with governmental efforts to streamline the country’s debt maturity profile.

With fears of default subsiding, risk aversion towards the Kenyan shilling has diminished, resulting in its appreciation against various currencies over the past week. This positive trend is reinforced by inflows from multilateral lenders and increased foreign investor interest in the recently issued Infrastructure Bond.

As the shilling reaches levels last observed in June 2023, currency speculators are hastening to unload their positions, leading to an excess of dollar liquidity in the market, further strengthening the shilling.

Consequently, the Central Bank has intervened to curb volatility, with some analysts suggesting that the dollar could have depreciated to KES 130 per dollar by day’s end as of 15th February,2024 without such intervention.

Expectations point to sustained elevated dollar liquidity in the market in the short term, particularly as the country anticipates forthcoming disbursements from the World Bank by April.