Nothing seems to be able to dent the strength of the Kenyan shilling in recent months. These days it has even broken through the 129 shillings to the dollar mark.
The advent of Trump was feared, as was the much-feared collapse of the local currency, which has remained strong in spite of inflation, growing public debt, the downgrading of rating agencies and foreign credit interests. Instead, Hurricane Donald has arrived, above all the USAID agency has cut its aid to Africa, and the shilling, at least judging by the 2 weeks after the edict of the new American government, is holding up.
The closure of the dollar taps will inevitably reduce the flow of foreign currency into the country, with an impact on Kenyan reserves. For now the suspension is ‘indefinite’, but there are rumours that in 3 months' time the results of the USAID audits could be revealed and at least the channels for emergencies and aid defined as vital could be reopened.
Recently the governor of the Central Bank of Kenya (CBK), Kamau Thugge, explained that the national credit institute does not foresee a loss of the shilling against the dollar.
According to Thugge the shilling will remain stable, thus continuing its positive trend that has lasted for eight months. ‘We do not see a great impact on the exchange rate from the freezing of aid,’ said the governor.
More important to the government are the growing remittances from Kenyans living abroad. If these were to stop and the price of oil, another major unknown, were to rise, then the Kenyan currency could suffer. In this sense, Trump's work for a definitive truce between Israel and Hamas (but certain statements about the people of Gaza are worrying...) could work better than cuts to USAID.
In fact, as the experts point out, Kenya's foreign exchange reserves currently amount to 9,066 million dollars, equal to about 1.17 trillion shillings at current exchange rates, and continue to provide adequate coverage and a buffer against any short-term shocks in the foreign exchange market.
‘The main risks are related to increased tariffs on imports and supply disruptions due to the ongoing conflict in the Middle East,’ the CBK said.