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Central Bank of Kenya (CBK) has reaffirmed government’s commitment to a market-determined exchange rate, with a readiness to intervene during periods of high volatility.

Governor Kamau Thugge acknowledged that the exchange rate had exceeded the equilibrium rate, suggesting a possible regulatory intervention.

“It is my view now that the exchange rate has overshot the equilibrium rate, so, there could be scope for the CBK to support [it] going forward,” Thugge said at a post-Monetary Policy Committee press conference.

Thugge did not specify when the regulator would step in, but mentioned measures already in place to stabilise the exchange rate, including a 50 basis point increase in the Central Bank Rate (CBR) to 13 per cent to bolster the exchange rate.

Significant interventions

Earlier on in the year, the governor had suggested that the shilling was overvalued by between 20 to 25 per cent a few years ago, noting that this was facilitated by the Central Bank’s significant interventions in trying to hold the shilling down.

He also outlined three strategic measures expected to fortify Kenya’s exchange rate, including anticipated disbursements from multilateral development partners and the issuance of an infrastructure bond that has attracted significant foreign interest.

According to Thugge, Kenya has been receiving and is anticipating further disbursements from multilateral development partners, including a recent $684 million (Sh Sh109.8 billion), from the International Monetary Fund (IMF), $400 million (Sh64.2 billion) from the Trade Development Bank, and an expected $1.5 billion (Sh240.8 billion) from the World Bank in March or April this year.

He also noted that with some African countries now accessing international capital markets, Kenya could do the same.

The CBK has engaged lead managers to advise on the optimal time to access international capital markets to handle the Eurobond due in June 2024.

“Lastly, with some African countries now gaining access to international capital markets, there is no reason why Kenya cannot follow suit. The CBK has engaged lead managers to advise on the appropriate time to access the international capital markets to deal with the Eurobond due in June 2024,” said Thugge.

This is even as the instability of Kenya’s exchange rate is causing significant distress among its citizens, impacting trade and investment, and potentially undermining the banking sector’s performance and stability. The depreciating currency is also escalating the cost of living for Kenyans by inflating the cost of imports.

On softening the monetary policy, in line with the US Federal Reserve Bank and the Bank of England which have signaled their intention to do so in May, Thugge said they will be guided by the upcoming MPC meeting scheduled for April, where a review the exchange rate’s performance will be undertaken.

Exchange rate

“In our case, we would be meeting in April and we will look at performance of the exchange rate. Our mandate as CBK is to ensure stability of prices and it is on that basis that we will take action,” he said.

He said as part of its mandate to ensure price stability, the CBK will take action based on this review, observing the performance of inflation and the exchange rate, which will guide its decision on whether to relax or tighten the monetary policy should the pressures not reduce.