The World Bank Group has identified key factors contributing to the Kenyan shilling’s strong performance since mid-February, attributing it to strategic interest rate hikes by the Central Bank of Kenya (CBK) and the partial settlement of the nation’s debut Eurobond.
These moves have significantly bolstered the shilling, making it the leading currency in Sub-Saharan Africa in terms of year-to-date gains.
According to the World Bank’s latest regional outlook, the CBK’s decision to increase the benchmark lending rate has been a critical element in defending the shilling.
“The Kenyan shilling is the best-performing currency in the sub-continent, and it recorded an appreciation of 16 percent so far this year. After strengthening by 14 percent in mid-February, the Zambian Kwacha has lost some ground and recorded a year-to-date appreciation of 2.4 percent as of mid-March. In both cases, the monetary authority hiked interest rates to defend their currencies,” the World Bank notes in a new regional outlook report.
In December and February, the CBK raised the Central Bank Rate (CBR) from 10.5 percent to 13 percent. This policy adjustment aimed to attract foreign exchange flows by making local investments, such as government securities, more appealing to international investors.
Furthermore, the partial repayment of the Eurobond notes, which are set to mature in June, has also played a vital role in revitalizing demand for the Kenyan currency. This fiscal manoeuvre not only underscores Kenya’s commitment to meeting its international financial obligations but also enhances investor confidence in the country’s economic management.
The shilling’s robust performance is highlighted by its 16 percent appreciation so far this year, distinguishing it from other regional currencies. In comparison, the Zambian Kwacha, which also experienced a significant boost following a monetary tightening, has seen some of its gains erode, now posting a year-to-date appreciation of 2.4 percent.
The World Bank’s analysis suggests that proactive monetary policies, such as those implemented by the CBK, are essential in stabilizing and strengthening national currencies against a backdrop of global economic uncertainties.
