Kenya’s foreign exchange reserves rose by USD 268 million this week to USD 11.17 billion, equivalent to 4.9 months of import cover, marking a notable improvement in the country’s external position.
The uptick reflects a confluence of resilient diaspora inflows, investor appetite for government securities, and a stable currency environment, as broader economic indicators signal subdued momentum.
Diaspora Remittances and Export Resilience Bolster External Buffers
The Central Bank of Kenya (CBK) reported USD 426.1 million in diaspora remittances for August, sustaining a 12-month cumulative growth of 9.4% to USD 5.08 billion.
While this marked a slight 0.2% decline compared to August 2024, cumulative remittances over the 12 months to August rose by 9.4%, reaching Sh656.6 billion, up from Sh600.5 billion the previous year.
These inflows, alongside robust horticulture and coffee exports, have helped narrow the current account deficit to 1.6% of GDP as of June 2025, down from 1.8% the previous year. The USD/KES exchange rate remained stable at KSh 129.24, supported by moderate import demand and strong service receipts.
“Remittance inflows remain a key source of foreign exchange earnings and continue to support the balance of payments,” says the CBK.
Treasury Auctions Signal Investor Optimism
Investor confidence in Kenya’s fiscal trajectory was evident in the September 11 Treasury bill auction, which recorded a 161.5% performance rate, attracting KSh 38.8 billion against a KSh 24 billion offer. This overperformance aligns with NCBA’s August commentary, noting excess liquidity in the banking sector being channelled into government paper amid low private sector credit disbursements.
The trend is further underpinned by Kenya’s recent credit rating upgrade to ‘B’ with a Stable Outlook by S&P, which has contributed to lower yields across Eurobond issuances and sustained appetite for longer-tenor domestic securities.
Fitch affirmed Kenya at ‘B-’ with a Stable Outlook, while Moody’s maintained a Caa1 rating with a Positive Outlook.
Monetary Policy Easing Yet to Spur Growth
Despite the CBK’s 350-basis-point cut in the Central Bank Rate (CBR) and inflation remaining within target at 4.5% in August, the transmission of this rate change into real economic activity remains limited. The headline Purchasing Managers’ Index (PMI) stood at 49.8 for the fourth consecutive month, indicating contraction in private sector activity due to weak consumer purchasing power and subdued demand.
To enhance credit market responsiveness, the CBK introduced a risk-based pricing framework for banks, aimed at improving policy transmission and stimulating lending.
However, NCBA projects GDP growth to remain below 5% in 2025, citing constrained fiscal space and the absence of a clear growth catalyst.
Outlook: Fiscal Adjustments and External Cushioning
Kenya’s FX reserve build-up offers a buffer against external shocks, particularly as import demand is expected to rise with the resumption of economic activity. The government’s ongoing efforts to refinance debt and manage liabilities—such as potential bond switches and increased long-term issuances—may provide room for fiscal adjustments later in the year.
With external debt service projected to rise 30% to KES 724 billion in FY 2027/28 due to the Eurobond 2028 maturity, sustained investor confidence and disciplined public finance management will be critical to maintaining macroeconomic stability.
