KWFT and the African Guarantee Fund have signed a Sh725 million risk-sharing partnership agreement to expand lending to women-led or women-owned small and medium enterprises in Kenya.
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Shilling stages 10-day rally against top EAC currencies
The Kenyan shilling is ending its long dismal run after turning the tables against its regional peers last week on the back of marginal gains against major world currencies, raising hopes that the turmoil in the foreign exchange market is ebbing.
An analysis of the Central Bank of Kenya (CBK) data shows that the local unit, which closed 2023 on the worst run in 30 years, has gained against the Ugandan shilling for the last 10 consecutive days and for three straight days against the Tanzanian shilling.
On Thursday, the CBK quoted the Kenyan shilling at Sh23.98 against the Ugandan shilling from Sh23.72 on January 26 and Sh16.14 against the Tanzanian shilling from Sh15.83 over the same period.
The developments have coincided with the shilling’s rebound against major world currencies, with the local unit, for instance, recording seven straight days of gains against the US dollar to trade at Sh160.08 as at the close of trading on Thursday.
A combination of factors, including recent disbursements of dollar-denominated loans by multilateral lenders and foreign investor interests in the recently issued infrastructure bond by the government, has restored confidence in the forex exchange market, leading to a change in fortunes.
At the same time, the CBK has held private meetings with banks in an attempt to dissuade them against aggressive dollar quotes.
Last week, CBK Governor Kamau Thugge said the shilling had found its level, suggesting he stood ready to defend the local currency in actions which had traditionally included the direct sale of hard currency by the apex bank in the open market to prop up the local unit.
“CBK policy on the exchange rate is to allow it to be determined by market forces but we do intervene when there is excessive volatility. It is my view now that the exchange rate has overshot the equilibrium rate and there could be scope to support the exchange rate going forward,” he said on Wednesday.
The strengthening of the Kenya shilling against its peers in the region could prompt a reversal in the growth of exports to the neighbouring countries as Kenyan goods in the market become costlier, requiring more Ugandan and Tanzanian shillings.
The value of Kenya’s exports to Uganda had crossed the Sh100 billion mark for the first time in November 2023 on a weaker domestic currency.
Ugandans purchased goods worth Sh105 billion in 11 months to the end of November last year as the Kenyan shilling edged downwards against the Ugandan shilling over the same period by 17.4 percent.
The attractiveness of Kenyan goods and services to Ugandans had become so vivid that reports from the border town of Busia showed Ugandans had crossed over to buy groceries, cooking oil and wheat flour.
Movements between the Kenyan, Uganda and Tanzania shilling(s) have often been determined by the dollar quotes against the regional currencies, which determine the relationship of one currency and the other.
The Kenyan shilling, for instance, came under pressure from both regional currencies as the local unit took a beating from an appreciating US dollar.
The reversal of losses for the shilling against peer currencies is expected to come as a relief to traders who had in the past year lamented higher import costs.
“Many of us have had to cut on the volume of goods we are importing or have had to increase money to get the same volume of goods we used to get, say a year earlier,” Samuel Karanja, the Importers and Small Scale Traders Association CEO, told the Business Daily in a past interview.
While the shilling’s fortunes against regional peers may be improving, the weakening of the Kenyan economy against its East African neighbours may bring back currency pressures over the medium term as Uganda and Tanzania rival Kenya with improving foreign direct investments, exports and travel receipts.
Kenya’s ratio of exports to GDP has, for instance, declined from 12.5 percent in 2011 to 6.5 percent while Uganda and Tanzania have had a more moderate drop in the key ratio, with their respective export ratios falling to 8.9 percent and 9.4 percent respectively from 11.6 and 15 percent over the same review period.
The CBK has recently sounded alarm bells on the waning competitiveness of the Kenyan economy, attributing it to the shilling’s free fall.
“The point we want to make is that we have been losing competitiveness. Our level of exports to GDP has been declining consistently, we are not getting as much tourism receipts as our neighbours and our FDI has also declined. At the same time, our debt service has also been increasing and is much higher than our neighbours,” Dr Thugge said in December.
