Strong dollar leaves Shilling in steady slide

“We can expect the shilling to touch year the year high 82.30 level,” says Mr. Muiga.

When the central bank wishes to raise the value of the shilling, it usually buys dollars or Euros in exchange for local currency.

The increased demand for shillings in the currency market by the central bank will raise the value of the shilling and cause a dollar depreciation. 

Value of currency

The ability of a central bank to raise the value of its currency through direct FOREX interventions is however limited.

In order for the CBK to buy dollars, it must have a stockpile of foreign exchange reserves.

The CBK’s foreign exchange reserves stood at $3.4 billion last week compared to $3.3 billion in December last year.

Foreign exchange reserves are typically accumulated over time and held in case an intervention is desired.

The degree to which the CBK can raise the shilling value with respect to the dollar through direct foreign exchange intervention will depend on the size of its foreign exchange reserves.

With Kenya being a net importer it can be argued that a stronger unit would be better for the economy as the country would be able to source goods and capital goods procurement more cheaply.