The World Bank Group has credited interest rate increases by the Central Bank of Kenya (CBK) and the partial settlement of Kenya’s debut Eurobond for the shilling’s rally seen since mid-February.
According to the multinational lender, the higher benchmark lending rate by the CBK has amounted to a defense of the local currency while the partial repayment of the Eurobond notes maturing in June has revived demand for the shilling.
The shilling has been the biggest gainer among currencies in Sub-Saharan Africa on a year-to-date basis, alongside the Zambian Kwacha which has however shed some of its gains.
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“The Kenyan shilling is the best performing currency in the sub-continent, and it recorded an appreciation of 16 percent so far this year.After strengthening by 14 percent in mid-February, the Zambian Kwacha has lost some ground and recorded a year-to-date appreciation of 2.4 percent as of mid-March. In both cases, the monetary authority hiked interest rates to defend their currencies,” the World Bank notes in a new regional outlook report.
CBK undertook two consecutive raises of the benchmark interest rate in December and February, setting the Central Bank Rate (CBR) at 13 percent from 10.5 percent, with the primary goal of cushioning the shilling by attracting foreign exchange flows into local investments such as government securities.
Source: The East African
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