Treasury CS Njuguna Ndung’u has explained why the shilling has strengthened against the dollar over the past few days.
Speaking during the National Executive Retreat in Naivasha, the CS said that potential investors shied away because the country had not resolved the Eurobond issue.
He said the Market speculated the government would go to the market to buy dollars to try and benefit.
"We noticed that however much we tried to talk about the strategy to resolve the Eurobond, there were always some doubts because a big portion especially our microstructure of the market believed that the government would still go to the market to buy dollars to effect payments of the Eurobond," he said.
"That is why all of a sudden the market coordinated itself to speculate on the dollar and they were buying as many dollars as possible to try and benefit from the time the government goes into the market."
He said that the treasury established that after the Eurobond was in the Forex Bureau.
"The market was acquiring a waiting option, to resolve the Eurobond. We needed a mechanism to dislodge the market from that option," he added.
The Kenyan Shilling has continued to significantly gain against the dollar.
As of Tuesday, February 20, the Kenyan Shilling was being exchanged at 142.81 per US dollar according to the Central Bank of Kenya.
The US dollar had risen from an average exchange rate of Sh125 against the shilling in the first quarter of 2023 to Sh162 posted in January 2024.
On January 15, the shilling officially crossed 160 unit points against the US dollar, the lowest level on record.
The Central Bank of Kenya blamed the depreciation of the shilling on the $2 billion (Sh300 billion) Eurobond.
The depreciation made imports more expensive while at the same time pushing up Kenya's debt.
However, the country on Tuesday last week successfully issued a new Eurobond worth $1.5 billion (Sh238 billion) to buy back the inaugural one due on June 24.
The National Treasury said the new loan is divided into three instalments and has a weight average life of six years and is expected to mature in 2031.
The bond is priced at 10.37 per cent, the highest rate an African state has ever offered.
