The Central Bank of Kenya (CBK) has projected stability in the forex market despite the recent reduction in the lending rate to 12.75 percent.
CBK Governor Kamau Thugge assured that the Kenyan Shilling to US dollar exchange rate would remain steady, despite the interest rate differentials (IRD) with advanced economies that are also moving towards lowering their rates.
Governor Thugge emphasized that the anticipated reduction in US interest rates, expected in September, would prevent significant pressure on the Shilling. He also mentioned that the recent credit downgrade would not lead to a depreciation of the local currency, as the country is experiencing an influx of foreign currencies.
Thugge stated, “We have not seen any weakening of the Kenyan Shilling because we are observing more foreign exchange coming into the economy than going out. We do not expect the downgrade to have a significant impact on the Shilling’s value.”
This projection follows the Monetary Policy Committee (MPC) meeting on August 6, 2024, where the Committee decided to lower the Central Bank Rate (CBR) to 12.75 percent. This decision was influenced by the resilient performance of Kenya’s economy, with a real GDP growth of 5.0 percent in the first quarter of 2024.
Kenya’s overall inflation has also declined to 4.3 percent in July 2024, down from 4.6 percent in June. This decrease is attributed to stable food inflation and a reduction in fuel inflation, which dropped to 4.5 percent in July from 6.4 percent in June. Non-food non-fuel (NFNF) inflation slightly eased to 3.3 percent in July, reflecting the effects of monetary policy measures.
Governor Thugge concluded that overall inflation is expected to remain below the midpoint of the target range in the near term, supported by stable exchange rates, lower food prices due to upcoming harvests, and stable fuel prices.