Kenya Shilling Hits Below 130 Agaist USD in Forex Markets as CBK Maintains 13% Base Lending Rates

 

Central Bank Governor Kamau Thugge 

The Kenya shilling has maintained stable exchange rates against major regional and global currencies. Central Bank Governor Kamau Thugge received an award as best central bank governor in Africa following the recovery of the Kenya shilling. At the beginning of June, the Central Bank of Kenya released its weekly bulletin indicating that the indicative exchange rate for the Kenya shilling was stable.  "The Kenya Shilling remained stable against major international and regional currencies during the week ending May 30. It exchanged at KSh 131.87 per US dollar on May 30, compared to KSh 131.36 per US dollar on May 23" CBK reported on June 3.  One week later, the shilling recorded a stronger exchange rate, closing the markets on Friday, June 7, at an indicative exchange rate of KSh 130.0433 per US dollar. Exchange rates in forex markets The value of the Kenya shilling has further appreciated against the US dollar in the forex markets. Some players in the market closed the week trading at KSh 128 buying price while others were buying at KSh 129. CBK interest rates and impact on Kenya shilling In the recent Monetary Policy Committee meeting, the CBK chose to maintain the base lending rates at 13%, one of the highest rates in Kenya's history.  According to the CBK, the high interest rates have strengthened the value of the Kenya shilling against major global currencies, which has contributed to the drop in inflation rates. Daniel Kathali, an economist and a lecturer, explained to TUKO.co.ke how the CBK base lending rates influence the value of the Kenya shilling in the forex markets. He said that more investors prefer Kenya shilling-denominated investments when the base lending rates are high because the high base lending rate means more interest. "The base lending rate has an indirect impact on exchange rates by attracting foreign investors who are looking for bigger returns on investments in the local currency due to higher interest rates. Following the increase in the base lending rate by the Central Bank, there has been a higher demand for the shilling in comparison to the dollar. These policies, together with others that have increased investor confidence in the Kenyan economy, have led to the rise in the value of the Kenya shilling, as observed in trade activities," said Kathali.  However, in an earlier story by TUKO.co.ke, Kenya Institute of Bankers (KIB) chief executive officer (CEO) James Wanjagi explained that the rate hike has increased the number of non-performing loans (NPLs) between February and April 2024. In an exclusive interview with TUKO.co, ke Wanjagi explained that the high interest rates have forced banks to increase their lending rates significantly. 

by  Elijah Ntongai