Why That Surge Of Shillings On Dollars Was Artificial

Kenyan Shilling Makes Back to Back Drop After Being Ranked Best Performing

The Kenyan Shilling on Wednesday recorded its third consecutive drop this week after slipping on Monday and Tuesday.

As of Wednesday, commercial banks quoted the Shilling at 132/133 against the Dollar, compared to Tuesday’s closing rate of 131/132.

Meanwhile, on Monday, commercial banks quoted the Shilling at 130/131 per Dollar, compared with Friday’s close of 129.50/130.50.

While commenting on the sudden drop, senior economist, Professor Fred Ogola who spoke to Kenyans.co.ke noted the government’s monetary policy to buy back part of the Eurobond using a new Eurobond was not a sustainable move to tame the Shilling’s drop.

Economists mbona commodity prices hazichange ?..

Kwani hii Dollar inashuka peke yake bila impact buana…Ebu tuelezee.

According to Ogola, the economic fundamentals that could have helped sustain the Shilling against the dollar were not changed, and thus the fluctuations in the exchange rates.

“If you issue a bond at an 18 percent interest rate, it means that you are increasing the Kenyan debt stock by a significant amount because you are borrowing with a higher cost of capital,” Professor Ogola stated.

“It is like a change that has happened by a fluke, there are no serious economic fundamentals that have changed and therefore we are likely to see more volatility of the Shilling going forward,” he added.

Another economist attributed the Shilling’s drop to a demand for the dollar from people who were hoping that the Dollar/Shilling exchange rate would go lower.

It was revealed that those mostly rushing for the dollar were traders who held back from buying dollars in recent weeks as the local unit strengthened.

The recent development comes weeks after the local currency was ranked as the best performing globally after it gained by over 20 percent.

Instructively, the Shilling’s sudden gain was attributed to the partial buyback of the 310 billion ($2 billion) Eurobond that was acquired in 2014 and is expected to mature in June this year.

The repayment of the Eurobond was made after the government issued another Eurobond worth Ksh233 billion ($1.5 billion).

Other factors that contributed to the gains were the hike in diaspora remittances and inflows from the sale of Kenyan tea abroad.

Another critical factor that led to the Shilling’s gain was the issuance of the infrastructure bond by the Central Bank of Kenya (CBK).