The Kenyan Shilling gained ground supported by foreign exchange inflows from tea exporters, which slightly outpaced the usual end-of-month demand from the manufacturing sector. The shilling traded at 128.25/129.25 to the US dollar, a slight improvement from the previous day’s 128.50/129.50, signalling resilience despite ongoing economic challenges.
This modest appreciation is partly due to the anticipated interest rate cut by the US Federal Reserve, which has sparked optimism in global markets. A rate cut could weaken the US dollar, providing relief to currencies like the Kenyan Shilling that have been under pressure from sustained foreign investor selling since the US began raising interest rates in March 2020.
“Recent signals from the Fed have been positive for frontier markets like Kenya,” said a Nairobi-based trader. “The expectation of a rate cut is softening the dollar, giving us some breathing room.”
Inflows from the Kenyan diaspora and tea exports complemented steady demand from fuel importers and manufacturers, helping stabilize the shilling. The Central Bank of Kenya (CBK) has also been purchasing dollars to manage exchange rate volatility.
Despite these positive developments, the market reaction was muted after S&P Global downgraded Kenya’s sovereign credit rating, citing fiscal concerns due to changes in the government’s finance bill. However, traders noted that investor sentiment remained cautious, with many choosing to hold their positions rather than make new moves.
The trajectory of US monetary policy remains critical for Kenya’s economic outlook. A potential rate cut could provide the CBK with more room to adjust its own rates without risking a significant devaluation of the shilling.
CBK Governor Kamau Thugge expressed optimism, stating, “Lower rates in advanced economies could reduce funding costs for emerging markets and open up access to international capital, stimulating economic growth.”
With a lower US rate, Kenya could also benefit from reduced borrowing costs, easing the government’s external debt burden and potentially boosting investor confidence in the Nairobi Securities Exchange.