(Bloomberg) — Kenyan Central Bank Governor Kamau Thugge said the shilling is at appropriate levels after its world-beating gains this year, and that policy makers are prepared to use record foreign reserves to defend the currency.
The shilling has gained 21% against the US dollar, the best performance this year among global currencies tracked by Bloomberg. It now trades at 129 per dollar.
“We are fairly comfortable with the FX rate,” he said in an interview on Wednesday on the sidelines of the World Bank and International Monetary Fund annual meetings in Washington.
The bank sees gross international reserves hitting $8.9 billion at end of 2024, an increase of $1.9 billion this year. The reserve accumulation is key to keeping the currency at this level, Thugge said.
“We have built strong external buffers, and should be able now to address any short-term exogenous shocks,” he said. “We will smoothly manage whichever direction the exchange rate is when driven by fundamentals.”
IMF Review
Thugge expects the IMF to take up the seventh and eighth reviews of the roughly $3.9 billion extended fund facility next week. The government requested a waiver from the IMF during the current review after missing revenue targets, he said.
It will begin discussing the outlines for a new program with the IMF after the fund’s board finishes those reviews and may request new funds under its next program, Thugge said.
“We would like as much as much concessional funding from the IMF,” he said, without providing details on how much they’ll request.
Thousands of young people took to the streets of the capital Nairobi and other towns in mid-June to protest a government plan to impose new taxes on a wide range of items including bread, diapers and imported wheelchair tires.
“We were overly aggressive in terms of revenue targets, and given the social disruption, we need a balance of fiscal consolidation without upsetting people,” Thugge said. The country will “definitely” take this into consideration when discussing a new program, he added.
Kenya in February issued a $1.5 billion Eurobond and spent the proceeds on partially buying back 2024 notes due in June, easing the nation’s liquidity constraints at the time. It issued the new securities at 9.75% to refinance bonds sold a decade ago.
Kenyan debt has returned 8.5% this year, outperforming the 7% average for emerging-market government bonds, according to data compiled by Bloomberg.
Thugge ruled out a return to international capital markets in the short term as the budget has been fully financed.
–With assistance from Monique Vanek.
(Updates with comment on future program and context starting in ninth paragraph.)
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