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IMF raises alarm over static Kenya shilling versus dollar
Kenya, as a member of the IMF, has obligations on its exchange rate dealings where it is required to allow market forces to influence the currency market.
The International Monetary Fund (IMF) has expressed concern over the unchanged value of the Kenyan shilling against the dollar despite global shifts that were expected to see a stronger local currency.
IMF officials are reported to have termed the shilling too stable during their recent staff visit to Kenya, which concluded on October 10. The shilling has remained at the Sh129 range against the dollar for nearly a year.
The IMF’s view supports the position taken by some analysts suggesting that the shilling has remained static due to management of the market by the Central Bank of Kenya (CBK), which has challenged this view.
The CBK’s position is that Kenya has a flexible rate policy and only intervenes to smooth volatility.
The shilling has traded on a narrow range between Sh129.22 and Sh129.24 since the start of the year, despite weakening against other major world currencies, including the euro and British pound at 12 percent and 6.1 percent, respectively.
It has been stuck at the same levels despite a weaker US dollar in 2025, improved balance of payment receipts for Kenya and an increased level of official hard currency reserves.
The US currency is on course to its worst performance in a calendar year in more than two decades.
It has dropped nearly 10 percent against a basket of major currencies such as the euro and pound as Donald Trump’s trade and economic policies cause global investors to rethink their exposure.
“The IMF were in town two weeks ago, and one of the things they told us is that the exchange rate is too stable, and they think it is interfering with inflation targeting,” said Ndiritu Muriithi, the chairman of the Kenya Revenue Authority (KRA), who attended the IMF staff meetings.
“I found it strange myself that the IMF would say the exchange rate is too stable.”
A stronger shilling makes domestically focused companies that rely on inputs from overseas in foreign currency face lower costs.
It also weakens the local firms’ foreign earnings, while also making Kenyan goods expensive abroad.
Analysts who spoke to the Business Daily anonymously said that the government was likely intervening to keep the shilling weak through CBK’s purchase of dollars.
The IMF did not offer more details on its position that the shilling is overly stable against the dollar.
“While we do not comment on specifics of any ongoing discussions with the Kenyan authorities, as a general principle, our policy advice with regard to exchange rate is guided by the IMF’s Articles of Agreement,” an IMF spokesperson told the Business Daily.
The exchange rate has long been a sensitive issue. The central bank has in the past challenged the IMF when it said the shilling was overvalued.
Kenya, as a member of the IMF, has obligations on its exchange rate dealings where it is required to allow market forces to influence the currency market.
The IMF is tasked with overseeing the international monetary system to ensure its effective operation in a role that includes stringent surveillance of members’ exchange rate policies.
“Each member shall provide the fund (IMF) with the information necessary for such surveillance and, when requested by the fund, shall consult with it on the member’s exchange rate policies,” the IMF notes in its articles of agreement.
In 2018, the then CBK Governor Patrick Njoroge clashed with the IMF over the fund’s claim that the shilling was overvalued amid a threat that the Washington DC-based multilateral would reclassify the local unit from a free-floating currency arrangement to manage.
Dr Kamau Thugge, the current CBK Governor, and Treasury Cabinet Secretary John Mbadi have defended the long stint of the shilling’s stability against the US dollar, insisting that the valuation aligns with macroeconomic factors such as low and stable inflation and an improved balance of payments position.
The apex bank says it only intervenes in the foreign exchange market to reduce instances of volatility and that it has no desired rate for the shilling.
“The Kenya shilling has remained stable, supported by diversified foreign exchange inflows from diaspora remittances, horticulture, tea exports and offshore banks as well as confidence in the economy, particularly with the recent upgrade of Kenya’s credit rating by S&P Global Ratings,” Dr Thugge said earlier this month.
“The expectation is that the stability will continue given momentum in the balance of payments and the narrowing of the current account deficit.”
The CBK has remained active in the foreign exchange interbank market alongside banks, according to market players who spoke to this publication.
The Business Daily could not, however, establish a specific bid price set by the apex bank to buy dollars amid claims of its management of the market.
The IMF’s view on the exchange rate will be crucial at a time when Kenya is seeking a new loan plan with the fund as a successor facility to a multi-year arrangement, which was terminated prematurely in March with an estimated Sh110 billion left undisbursed.
A staff team from the IMF completed a physical visit to Kenya earlier this month to initiate discussions on a new arrangement with Kenya.
The discussions have since moved to Washington DC, where the Executive Board of the fund sits.
“We welcome the Kenyan authorities’ candid engagement and remain steadfast in our commitment to partnering with Kenya to secure a more robust, sustainable and inclusive economic future for all Kenyans,” Haimanot Teferra, the IMF’s mission chief to Kenya, said at the conclusion of the recent staff visit on October 10.
