NAIROBI, KENYA – A period of remarkable stability for the Kenyan shilling has drawn scrutiny from economic and political commentators, amplifying a quiet debate over whether the currency's strength is a sign of sound monetary policy or an artificially maintained calm that masks underlying economic pressures. The shilling has held steady at approximately KSh 129.24 to the US dollar for much of 2025.

The public conversation was ignited on Thursday, October 30, 2025, when prominent lawyer and commentator Willis Otieno questioned the foundations of the currency's performance. “How is it that the shilling has 'miraculously' stabilised when every economic indicator points to collapse? Are we witnessing fiscal discipline or currency theatre?” Otieno stated in a widely circulated post on the social media platform X. He suggested the stability might be the result of “burning through reserves and using borrowed dollars to keep up appearances.”

Official Position: A Result of Prudent Policy

The Central Bank of Kenya (CBK) and the National Treasury attribute the shilling's stability to strong macroeconomic fundamentals. According to the CBK, the currency is supported by diversified foreign exchange inflows from diaspora remittances, robust performance in the horticulture and tea export sectors, and renewed investor confidence. In an October 2025 statement, CBK Governor Kamau Thugge affirmed this position, stating the valuation aligns with factors like low inflation and an improved balance of payments.

This stability has been bolstered by a significant increase in the country's foreign exchange reserves. CBK data from October 23, 2025, showed usable reserves reached a record high of USD 12.08 billion. This surge, equivalent to 5.3 months of import cover, surpasses the statutory minimum of 4.0 months and was largely driven by the proceeds of a successful USD 1.5 billion Eurobond issued in early October 2025. Officials maintain that these reserves provide an adequate buffer against external shocks and are used only to smooth out market volatility, not to defend a specific exchange rate.

A Counter-Narrative: An Artificially Strong Shilling?

However, Otieno's skepticism is not isolated. It echoes concerns reportedly raised by the International Monetary Fund (IMF) during a staff visit that concluded on October 10, 2025. According to Kenya Revenue Authority (KRA) chairperson Ndiritu Muriithi, IMF officials described the exchange rate as “too stable,” suggesting it could be interfering with monetary policy transmission and inflation targeting. This indicates a view that the shilling's lack of fluctuation is unnatural given global economic shifts, including a weaker US dollar in 2025.

This perspective posits that the stability may be the result of consistent intervention by the CBK in the currency market. While the CBK maintains it has a flexible exchange rate policy, some analysts argue that the narrow trading band of the shilling for nearly a year points towards a managed currency. The critical question is the cost of maintaining this stability, particularly if it involves depleting foreign reserves acquired through debt rather than organic economic activity.

Implications for the Kenyan Economy

The debate has significant implications for Kenyan households and businesses. A stable shilling is beneficial for importers and helps manage inflation by keeping the cost of imported goods like fuel, food, and industrial raw materials in check. Kenya's inflation rate stood at 4.6% in September 2025, within the central bank's target range. This stability provides predictability for businesses planning investments and helps shield consumers from price shocks.

Conversely, if the shilling is overvalued, it harms exporters by making Kenyan goods and services more expensive on the international market, potentially impacting key sectors like agriculture and tourism. It also raises questions about the sustainability of the country's debt, as a significant portion is denominated in foreign currency. Kenya is currently in discussions with the IMF for a new funding program of approximately USD 3.6 billion to address debt sustainability and macroeconomic stability.

As the National Treasury navigates financing a KSh 4.29 trillion budget for the 2025/2026 fiscal year, with a significant portion funded by borrowing, the management of the exchange rate remains a critical policy challenge. Whether the shilling’s current stability is a testament to Kenya's economic resilience or a temporary, costly measure is a question that will only be answered by future economic performance and policy transparency.