IMF officials consider this low volatility of the Kenyan shilling

The International Monetary Fund (IMF) has warned of the excessive stability of the Kenyan shilling against the US dollar. The currency has shown only minor fluctuations and remained largely constant at around 129 shillings per dollar in 2025. IMF officials consider this low volatility unusual given global economic changes and monetary policy. They suspect that the exchange rate does not fluctuate sufficiently to reflect inflation targets and monetary policy adjustments. The static shilling could impair inflation control and economic signaling, which is unusual since currency movements are typically intended to offset various economic factors. IMF officials consider this low volatility unusual given global economic changes and monetary policy. However, Kenyan government officials, including the Ministry of Finance and the Kenyan Revenue Service, reject the IMF's concerns. They argue that the stability of the Kenyan shilling demonstrates economic resilience based on solid fundamentals such as strong remittances from Kenyans living abroad, improved liquidity, disciplined fiscal policy, and transparent foreign exchange policy. They emphasize that the stability reflects regained investor confidence and a strengthened external position with healthy foreign exchange reserves. At the heart of the debate is whether the shilling's stability is a natural consequence of sound economic conditions or a rigidity imposed by monetary policy. Kenya maintains the former view, while the IMF warns of risks due to the unusually low volatility. These are the reasons for the IMF's concern regarding the stability of the Kenyan shilling: - The exchange rate is "too stable" and does not respond to inflation and monetary policy changes. - Limited currency fluctuations despite global economic dynamism. - Concerns that excessive rigidity could impair inflation control. - The IMF's view that such rigidity could obscure market signals and hinder economic adjustment processes. Kenya's counterarguments are: - The stable shilling is a sign of economic strength and resilience. - Stability is based on sound economic fundamentals, including remittances and monetary policy. - Improved liquidity and increased investor confidence support the current exchange rate. - Official foreign exchange reserves are robust and provide a buffer. The IMF's concern reflects the worry that economic adjustment mechanisms could be hampered by an unusually static exchange rate, while Kenya highlights this stability as evidence of a well-managed economy with strong fundamentals. @https://www.businessdailyafrica.com/bd/markets/currencies/imf-raises-alarm-over-static-kenya-shilling-versus-dollar-5249692  @https://www.tuko.co.ke/business-economy/economy/607945-imf-raises-concerns-kenya-shillings-long-term-stability-dollar/