How the Kenya Shilling became the best performing currency in Africa

11/04/2024•2 minute read

How the Kenya Shilling became the best-performing currency in Africa

Advertisements

The Kenyan shilling has defied expectations, transforming into the best performing currency in Sub-Saharan Africa. According to a recent World Bank report, the Kenyan shilling is the best performing currency in the subcontinent, as it has recorded an appreciation of 16% so far this year. The Kenyan shilling now reigns supreme, dethroning the Zambian Kwacha, which had held the best-performing currency title since last year after its central bank raised interest rates. However, after strengthening by 14% by mid-February, the Zambian kwacha lost some ground and recorded a year-to-date appreciation of 2.4% as of mid-March.

Like the rise of the Zambian Kwacha last year, the Kenyan shilling has its monetary authority to thank for this feat. The World Bank attributes the shilling’s success story directly to the CBK’s decision to raise the base lending rate. This move, while seemingly straightforward, triggered a domino effect of positive outcomes. In February, the Kenyan shilling recorded its strongest intra-day gain against the dollar in the last 12 years. Higher interest rates attracted investors, boosting their confidence in the Kenyan economy. This confidence translated into a surge in demand for the shilling, driving its value upwards, which directly boosted the currency’s value.

The positive effects extend beyond the currency market. A stronger shilling reduces Kenya’s debt burden. Still, in February, the Kenyan government received significant inflows to pay off the $2 billion Eurobond. As the shilling gains value, the cost of servicing foreign currency debt decreases. This frees up valuable resources for the government to invest in critical areas like infrastructure and social programs. The boost in currency value also had a positive effect on Kenya’s stock market. In March, the Kenya shilling rebounded to an eight-month high. The Nairobi Securities became the best bourse in Africa on dollar returns.

Related Articles:

The Kenyan economy is poised for significant growth, with the World Bank projecting a robust 5% increase in 2024. This growth is expected to be fueled by increased investments made possible by restoring access to international capital markets. The combination of higher interest rates, reduced debt burden, a thriving stock market, and renewed investor confidence paints a bright picture for Kenya’s economic future.