The Kenyan shilling has experienced a appreciation of 17% year-to-date against the US dollar, following the Central Bank of Kenya’s (CBK) decision to cut its benchmark interest rate for the second consecutive time in response to a notable decline in inflation.
In September, the Kenya National Bureau of Statistics (KNBS) reported that inflation decreased by 80 basis points to 3.6%, down from 4.4% the previous month, significantly influencing the central bank’s monetary policy.
This trend has strengthened the shilling, which had initially dipped to a low of 160 KES per dollar in January 2024.
Following its January low, the shilling began to recover in February, regaining approximately 8% of its losses as inflation eased from 6.9% in January to 6.3%.
By March, with inflation further decreasing to 5.7%, the currency strengthened to around 131 KES against the dollar.
Factors such as reduced prices for food, non-alcoholic beverages, housing, and utilities played a pivotal role in this recovery.
The central bank’s Monetary Policy Committee (MPC) subsequently lowered the Central Bank Rate (CBR) from 13.0% to 12.75% on August 6, 2024, and again to 12% recently, aiming to boost private sector lending and stimulate economic activity.
In remarks about the current economic landscape, Finance Minister highlighted the resilience of key service sectors, solid agricultural performance, and improved exports as critical factors expected to support Kenya’s growth.
The CBK also noted, “The MPC… observed the sharp deceleration in credit to the private sector and the slowdown in growth in the second quarter of 2024, concluding that there was room for further easing of monetary policy.”
The continued focus on lowering interest rates to enhance credit access for the private sector could further stimulate economic activity, providing additional support to the local currency as it remains strong into October 2024.
