Frontier Eye Desk
Nairobi, Kenya.
The International Monetary Fund (IMF) has raised concerns over what it terms the Kenyan shilling’s “excessive stability” against the US dollar, suggesting that the currency’s prolonged steadiness could be distorting monetary policy and hindering inflation-targeting efforts.
The remarks emerged during ongoing high-level talks for a new IMF-supported financing arrangement, following the early termination of Kenya’s previous $3.6 billion program in March 2025.
An IMF staff delegation led by mission chief Haimanot Teferra concluded a 15-day visit to Nairobi on October 9, after consultations with the National Treasury and the Central Bank of Kenya (CBK). The mission aimed to assess Kenya’s macroeconomic outlook and lay the groundwork for a new program centered on fiscal credibility, debt sustainability, and risk mitigation.
Although the Fund’s official statement lauded “productive discussions,” insiders revealed a pointed concern: the shilling’s near-fixed exchange rate at around KSh 129 per USD, a level it has maintained for nearly a year.
At a banking forum on October 24, Kenya Revenue Authority (KRA) Chairman Ndiritu Muriithi disclosed the IMF’s unease.
“One of the things the IMF told us when they were in town two weeks ago is that the exchange rate is too stable; they think it’s interfering with transmission and inflation targeting,”
Muriithi said, expressing surprise that stability — typically viewed as positive — had become a point of criticism.
CBK data shows the shilling trading at KSh 129.24 per USD on October 24 and virtually unchanged at KSh 129.15 on October 29.
This flat trend persists despite bullish forecasts by the African Development Bank (AfDB) in May 2025, which predicted the shilling could appreciate to KSh 120 on the back of strong remittances, expanding forex reserves, and vibrant regional trade.
Kenya’s foreign exchange reserves now stand at $12.08 billion — equivalent to 5.3 months of import cover — up from $9.3 billion earlier in the year. Annual diaspora inflows have surged 16.6% to $4.96 billion, while CBK’s monetary discipline has kept inflation in check. Yet, the IMF worries that the currency’s rigidity defies expected market responses amid global economic headwinds.
The Fund hinted at possible “market interventions” muting natural currency movements, though it stopped short of any direct allegations.
Treasury Cabinet Secretary John Mbadi admitted the government has acted to prevent “excessive strengthening” of the shilling, noting that while a stronger currency reduces import costs, it also hurts exporters’ competitiveness.
CBK Governor Kamau Thugge, speaking earlier at the IMF/World Bank Annual Meetings in Washington on October 13, defended the currency’s steadiness as evidence of Kenya’s improving economic fundamentals.
“Stability reflects resilience, not manipulation,”
he said, adding that a new IMF deal would be “critical to sustaining this macroeconomic balance.”
The issue highlights the delicate balancing act Kenya faces in its post-program fiscal era. After shelving unpopular tax hikes in 2024, the government now grapples with a widening budget deficit and a public debt exceeding KSh 10.8 trillion.
The search for fresh IMF backing underscores Nairobi’s effort to rebuild investor confidence and maintain debt sustainability.
While negotiations continue, IMF African Department Director Abebe Aemro Selassie said more talks are needed on “debt management and currency dynamics” before a staff-level agreement can be reached.
Economists remain split. FX Pesa analyst Rufas Kamau argues that a stable shilling saves Kenya billions in import costs — a boon for a heavily import-dependent economy. Muriithi echoed this view, questioning the IMF’s emphasis on volatility over local benefits.
As Kenya targets 4.8% GDP growth in 2025, the shilling’s trajectory may well determine whether the country secures vital IMF funding — or faces extended uncertainty.