Kenyas Central ...
Kenyas Central Bank Sees Minimal Impact on Shilling from U.S. Aid Freeze
Kenya's Central Bank Governor, Kamau Thugge, has stated that the recent suspension of U.S. foreign aid is not expected to significantly affect the Kenyan shilling's exchange rate. In late January, U.S. President Donald Trump paused most foreign development assistance pending assessments of efficiency and alignment with U.S. foreign policy. Despite this, Thugge emphasized that Kenya's foreign exchange reserves remain robust, totaling approximately $9 billion, which is sufficient to cover more than four months of imports. He also highlighted strong remittance inflows as a contributing factor to the country's healthy reserves.
Finance Minister John Mbadi expressed concerns that the U.S. aid freeze could adversely affect Kenya, noting the country's limited fiscal space to replace the funding. He expressed hope that the United States would reconsider its decision. Nevertheless, the Kenyan shilling has remained stable, showing little change against the dollar year-to-date. In 2024, the currency appreciated by about 21% following a bond buyback that alleviated concerns over potential government default.
In a related move to bolster economic growth, the Central Bank of Kenya recently reduced its main interest rate by 50 basis points to 10.75%, marking the fourth consecutive rate cut. The bank's Monetary Policy Committee also lowered the Cash Reserve Ratio by 100 basis points to 3.25% and initiated inspections to ensure that banks pass on the benefits of lower funding costs to customers. The committee noted that while economic growth decelerated in 2024, there is room for further monetary policy easing to support economic activity while maintaining exchange rate stability.
These developments underscore Kenya's proactive approach to maintaining economic stability amid external challenges and its commitment to fostering growth through supportive monetary policies.
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