Loan promises from the International Monetary Fund (IMF) and World Bank have slightly stabilised the Kenyan Shilling, lowered yields on external loans and eased inflation.
A market watch by financial firm, FX Pesa shows, the level of shilling depreciation slowed to 1.6 per cent, levels last seen in July.
The local currency opened the market on Wednesday at 153.30 compared to 153.34 the previous day.
"Recent developments indicate a potential shift in the currency's trajectory. In November 2023, the shilling experienced its most gradual depreciation since July 2023, primarily attributed to increased positive sentiment from external funding commitments by the IMF and a reduction in the strength of the dollar,'' the report by FX Pesa reads.
According to the report, despite a 1.6 per cent depreciation during November, slightly higher than the observed 1.5 per cent in July, there are signs of emerging stability.
The government has employed several strategies to calm the shilling, which has shed close to 25 per cent in past year.
Since President William Ruto took power, the government has been trying to stem inflation and wipe out excess local currency in the market by for instance, raising base lending rates.
Last month, the Central Bank of Kenya raised the base lending by 200 basis points to 12.5 per cent, highest since 2016.
The committee noted that ongoing depreciation was exerting pressure on domestic prices, leading to an increase in the cost of living and a reduction in purchasing power.
"This decision reflects a proactive stance to address economic challenges associated with currency depreciation and aims to restore stability in the face of inflationary pressures," CBK says.
The report however says the situation remains dynamic, and stakeholders are closely watching the evolving economic landscape for further developments.
In April, the government negotiated for government-to-government oil import plan to ease pressure on dollar demand.
"This has softened depreciation and overall inflation by three per cent," CBK governor Kamau Thugge said during the most recent post Monetary Policy Committee (MPC) media briefing.
He however, condemned his predecessor of depleting forex reserves in an attempt to sustain an artificially strong shilling.
"This approach, while not uncommon, posed challenges, particularly as a net importer, especially in the context of a tightening US monetary policy," Thugge said.
However, a potential turning point is on the horizon with the International Monetary Fund's approval for an additional $939 million in financing for Kenya.
Although further approval is pending, this injection of funds is expected to address existing financial shortfalls, easing the strain on domestic borrowing and fostering increased investor confidence.
FX Pesa says, the positive momentum is further reflected in the seven per cent rise of the NSE All-Share Index since November 6th lows, driven by gains in banking stocks and Safaricom.
Additionally, the reduced yield on the Kenyan $2 billion Eurobond signals a gradual return of confidence in the market.
Internationally, there is anticipation among traders for the US Federal Reserve to start easing interest rates, with data from the Chicago Mercantile Exchange FEDWatch Tool indicating a high probability of a rate cut in May 2024 at 75 per cent and a cut in June 2024 at 93 per cent.
"Softening inflation figures for October and November contributed to this expectation."
The firm adds that while projecting interest rates six months ahead may seem speculative, prevailing market sentiment suggests that rates have reached their peak.
The decline in the US Dollar index by 3.35 per cent from its October 3rd peak, as reported by the Intercontinental Exchange, indicates strength in major currencies like the Euro and Yen against it.
Furthermore, the US 10-year yield has retreated to 4.24 per cent from its October high of 5.1 per cent.
This international trend is anticipated to have a positive spill over effect, alleviating pressure on other currencies, including the Kenyan shilling.