How Kamau Thugge Strengthened Kenya Shilling Against US Dollar in 1 Year

• Kamau Thugge took over the helm of Central Bank of Kenya (CBK) when the shilling was the brink of depreciation against the US dollar
• Thugge set up interventions to strengthen the shilling from a low KSh 140 per dollar reported in June 2023 to KSh 128 in June 2024
• Thugge's first step was to tighten the monetary policy, which saw the MPC raise base lending rates to 10.5%

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TUKO.co.ke journalist Wycliffe Musalia brings over five years of experience in financial, business, and technology reporting, offering deep insights into Kenyan and global economic trends.

Central Bank of Kenya (CBK) governor Kamau Thugge is one year into office and has achieved the tight spot of stabilising the shilling.

CBK governor Kamau Thugge speaking at a past parliamentary meeting. Photo: Parliament of Kenya. Source: Facebook

Official rates from the regulator indicated that the shilling traded at KSh 128.65 per US dollar, compared to a low of KSh 140.31 reported on June 22, 2023, when he took over from Patrick Njoroge.

Thugge employed interventions in his first days, including tightening the monetary policy, which have seen the shilling rank among the best-performing currencies globally.

Which policies have strengthened Kenya shilling in 1 year?

1. Tight monetary policy

As his first move into office, the 10th CBK boss increased the base lending rate to 10.5% from 9.5%.

Thugge said his first Monetary Policy Committee (MPC) meeting decided to ease the rising pressure on the shilling and the demand for dollars.

"After noting some of the demand pressures, including a backlog of people seeking to get foreign exchange, I called for a monetary policy committee meeting within one week, and we agreed to raise the policy rate by 100 basis points (1%) which was a surprise to the market,” said Thugge, as quoted by Business Daily.

In February 2024, Thugge and the team raised the Central Bank Rate (CBR) to 13% and retained it, strengthening the shilling.

2. Eurobond buyback

During the same month, Thugge announced a partial $1.5 billion (KSh 192.8 billion, based on the current exchange rate) buyback of sovereign bond notes.

CBK then issued a new infrastructure bond that increased its foreign exchange reserves, staging a comeback in the value of the shilling by more than 32% from a low of KSh 160 per US dollar reported in January 2024.

Speaking exclusively to TUKO.co.ke, market analyst at FXPesa Rufas Kamau explained the reaction to this buyback increased confidence in the Kenya shilling.

Kamau noted that issuing another Eurobond buyback could be a game-changer in Thugge's interventions, which could strengthen the shilling further against the greenback.

"The market reaction from the last Eurobond buyback increased confidence in the Kenya shilling. If the government issues another bond, CBK's foreign currency reserves will be stabilised. This could further increase investor confidence in the local currency against the US dollar," said Kamau.

3. Electronic trading system

This was part of the initial intervention taken by CBK under the new sheriff.

Thugge lowered the minimum transaction recorded as a forex interbank deal from $500,000 (KSh 64.3 million) to $100,000 (Sh12.9 million).

CBK unified the quoted exchange rate with that of commercial banks, which had disparities in 2023.

4. Funding from World Bank and IMF

The funding helped increase CBK's foreign exchange reserves, reducing demand pressures.

In February 2024, Thugge projected more US currency reserves after the National Treasury secured more funding from the International Monetary Fund (IMF) and the World Bank.

In May 2024, the government secured a KSh 27 billion loan and grant from the World Bank.

The CBK also sustained foreign currency inflows through diaspora remittances, which hit over KSh 50 billion in February 2024.

Other measures taken to strengthen shilling

Thugge also removed a 20 cents limit on bid-ask spreads in the interbank foreign exchange market.

This saw price discovery and transparency in the forex market, easing pressure on the shilling.

"We are trying to have a market-determined exchange rate that will respond to what’s happening in the current and financial account," said Thugge.

CBK increased its foreign exchange reserves to USD 8,321 million, providing 4.3 months of import cover For the first time in 12 months.

Kenya's US dollar reserves surpassed KSh 1 trillion, reflecting a significant milestone in the country's foreign exchange management.

What to know about Kenya shilling

• In May 2024, the shilling showed resilience, maintaining a positive trend against the US dollar throughout May after reversing a previous weakening trend.
• The World Bank attributed the rise in the value of the shilling to the hike of the base lending rate by the Central Bank of Kenya (CBK).

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