The ongoing rally of the Kenyan Shilling against the US Dollar has sent shockwaves through the market, reversing earlier losses experienced by the local currency.

This surprising turn of events comes on the heels of the oversubscription of Kenya's $1.5 billion Eurobond as well as the issuance and sale of an 8.5-year Infrastructure Bond by the Central Bank.

The Kenya Bankers Association (KBA) has noted this significant strengthening of the Kenyan Shilling, with the dollar buying and selling rates averaging 145 KES/$ and 148 KES/$, respectively, at market close on Thursday.

The association Chairman and NCBA Managing Director John Gachora notes that the liberalization of Kenya's capital account in the 1990s paved the way for a more flexible exchange rate regime, where the exchange rate is determined by the forces of supply and demand.

According to the bankers, the ongoing movement in the exchange rate can be attributed to the growing confidence in Kenya's macroeconomic performance and outlook.

This confidence has been bolstered by the recent successful floatation and pricing of a US $1.5 billion Eurobond and the issuance and sale of an 8.5-year Infrastructure Bond, a statement signed by Gachora notes.

Read also: Kenya’s Eurobond issuance sparks economic optimism

Infrastructure bond

Participation in the Kes70 billion Infrastructure bond was strong among domestic market players, with banks in Kenya holding approximately 50 percent of the outstanding public debt stock.

The Infrastructure bond received total bids worth Kes288 billion, of which Kes240.9 billion were accepted by the CBK, including Kes218 billion in competitive bids.

Foreign investor appetite for the infrastructure bond was considerable, contributing to the rally of the Kenyan shilling against hard currencies.

This rally was further supported by the successful issuance of the sovereign $1.5 billion Eurobond earlier this week, which dispelled earlier risk concerns of the country hurtling toward a debt default.

"With short-term concerns of a default largely in the rearview mirror, inflows from multilateral lenders, and syndicate loans provide sufficient buffers, scope, and resources - in effect reducing currency risk," said analysts at Standard Investment Bank.

"We view the strengthening as a general increase in the supply of USD skewing the demand and supply dynamics in favour of a KES upswing. And of course the slide is augmented by speculative dollar hoarders selling in panic," they added.

The KBA commends the Government of Kenya and the CBK for their economic stewardship during this challenging economic period. They also acknowledge the confidence and commitment of local bank depositors and customers, whose investments have contributed to the stability and growth of the local market.

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