Kenya’s shilling rallies the most in 16 years on $1.5bn Eurobond sale
TLDR
- Kenyan shilling experiences significant surge against the US dollar, highest level since November.
- Surge in investor confidence following inflows to repay $2 billion Eurobond due in June.
- Wave of selling dollars by locals due to speculation of successful Eurobond sale and alleviated concerns of US currency shortage.
On Wednesday, the Kenyan shilling experienced its most significant intra-day surge against the US dollar in the past 12 years, benefiting from a surge in investor confidence following substantial inflows received by the government to repay a $2 billion Eurobond due in June through a tender offer.
This surge propelled the local currency to its highest level since November of the previous year, completely erasing all losses incurred earlier in the year. The shilling has recorded its most substantial rally in nearly 16 years and is poised for its eighth consecutive day of gains, positioning it for an approximately 10% appreciation against the US dollar during this period.
The surge in the shilling's value coincides with a wave of selling of dollars by locals, prompted by speculation that a successful Eurobond sale has alleviated concerns of a shortage of the US currency. Earlier this week, Kenya issued a new $1.5 billion Eurobond maturing in 2031, which it plans to utilize to repurchase a significant portion of the $2 billion bond.
Key Takeaways
A stronger shilling offers significant advantages for the government, notably in reducing debt service costs. The Treasury estimates that a single unit movement in the currency can impact debt service costs by Ksh40 billion. With the shilling strengthening by 3.62 units against the dollar in the past week, Kenya has seen a remarkable reduction of Ksh144.8 billion ($965.3 million) in debt service costs within just seven days. Kenya's decision to repurchase a portion of its Ksh313 billion ($2 billion) Eurobond notes maturing in June has instilled confidence among investors, contributing to the sustained shilling rally by bolstering foreign currency inflows. Additionally, factors such as foreign investments in a 70 billion shilling infrastructure bond and the central bank's commitment to supporting the shilling through interest rate hikes have further reinforced the currency's strength.
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