Central Bank of Kenya (CBK) estimates project the shilling could weaken further to 150.76 by the time it is repaying Kenya Kwanza’s debut Eurobond in June next year, signalling continued pressure on the country’s exchange rate.
A new report by the Treasury projects the country will pay a total Sh301,513,774,986 for $2 billion international sovereign bond. This works out to an exchange rate of 150.76.
The Central Bank of Kenya (CBK) governor Kamau Thugge has proposed floating a local dollar-denominated bond to get wealthy Kenyans. who hold over Sh1 trillion in deposits, to release the greenback in an efforts to ease pressure on the Kenya Shilling.
Dr Thugge said he will work with the National Treasury to issue the dollar bond with attractive returns to get rich locals and businesses to release their fixed deposit accounts in local commercial banks.
“If we can get Kenyans holding dollars in deposit accounts to release them by buying into the bond, then we will have the possibility of increasing liquidity of dollars in the system and this will help us in building up foreign exchange reserves at the CBK.”
The shilling, which has been hitting record lows every day and has gone past the 140-mark, trading at an average of 140.2 against the dollar.
In March, the Treasury had put the redemption of the debut Eurobond at Sh241.75 billion, which works out to an exchange rate of Sh120.87- this is the exchange rate Treasury Cabinet Secretary Njuguna Ndung’u gave in his budget speech on Thursday last week.
In March, the government expressed optimism that the shilling would strengthen following the introduction of the government-to-government arrangement for oil imports aimed at providing a longer-term supply plan of fuel and ease the monthly demand for the dollar in the country.
However, the shilling has been on a free fall, shedding close to 13.5 percent of its value since the beginning of the year as the country continues to grapple with a dollar shortage that has been aggravated by the hike in interest rates by central banks in advanced economies.
Foreign exchange reserves as at June 15 were at Sh1.046 billion ($7.459 billion), enough to cover the country’s import needs for 4.11 months. The rise in the stockpile of the country’s foreign currencies is due to a disbursement of Sh140.2 billion ($1 billion) disbursement from the World Bank to support fiscal consolidation.
Kenya also expects more inflows from the IMF next month as part of its 38-month programme with the global lender which is also aimed at supporting the country’s fiscal consolidation efforts. Fiscal consolidation is aimed at reducing spending and increasing revenue.
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