CBK Governor Kamau Thugge Explains Policies That Will Strengthen Weak Shilling After Dollar Hits Ksh160


Central Bank of Kenya Governor Kamau Thugge has expressed optimism over the stabilisation of the shilling owing to various measures undertaken by the government.

Speaking during the first Monetary Policy Committee (MPC) address for the year on Wednesday, February 7, Thugge detailed that the shilling would soon strengthen against the dollar as a result of an increase in external inflows, Eurobond repayment and the increase of the Central Bank Rate.

The three measures, as explained by Thugge, are aimed at boosting foreign reserves and reducing pressure on dollar demand.

Concerning the expected boost to foreign reserves, the governor revealed that Kenya had received funding from global financial institutions in the last few months with more expected by March 2024.

President William Ruto (left) talking to an official from the International Monetary Fund (IMF) in Italy on January 29, 2024

PCS

Further, the governor noted that several foreign investors have also expressed interest in investing in the infrastructure bond which was fronted in November 2023.

“The IMF, as I indicated earlier, did disburse USD 684 million just last month. The Trade Development Bank (TDB) also made some disbursements of almost USD 400 million within the last two months. We are also expecting disbursements from the World Bank around March/ April of close to USD 1.5 billion.

“We have also seen interest from foreign investors in government securities. We are in the process of increasing the infrastructure bond and we have seen significant interest. We expect foreign exchange to come in from the purchase of the infrastructure,” he stated.

On the other hand, he acknowledged that there were concerns over the repayment of the USD 2 billion Eurobond, maturing in June, which poses risks to the shilling.

However, he assured Kenyans that the government would meet its debt obligation owing to the expected boost in foreign reserves. 

“I want to assure Kenyans that we have the resources. We have the money that is coming from the international institutions and the risk of the Eurobond will be eliminated and that should contribute to the strengthening of the shilling,” he stated.

Additionally, he added that the recent increase of the base lending rate from 12.50 per cent to 13 per cent also aimed to strengthen the shilling.

“High rates normally lead to an appreciation of the currency, as foreign investors seek higher returns and increase their demand for the currency,” the International Monetary Fund (IMF) explained how Central Banks use lending rates to strengthen local currencies.

However, the governor did not give the exact timelines for when the shilling would begin to strengthen and the desired exchange rate.

Currently, the dollar is trading at Ksh160.

A photo of the Central Bank of Kenya

Photo

KO Associates





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