The Kenyan shilling staged a remarkable comeback against the US dollar Wednesday, recording its strongest intra-day gain in 12 years.

This surge, fueled by investor confidence following the government's successful Eurobond buyback, wiped out all the shilling's losses for the year and pushed it to its strongest level since November 2023.

Equity Bank quoted the dollar at Sh153.75, while Kenya Commercial Bank (KCB)'s rate stood at Sh157.5, the highest among eight banks surveyed.

Forex bureaus offered the dollar between Sh152 and Sh157, a sharp contrast to Tuesday's official rate of Sh156.7.

This appreciation translates to lower import costs for Kenyans as less shillings are needed to purchase the same amount of goods.

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The government also stands to benefit from reduced debt service costs.

According to the National Treasury, a single unit movement in the currency impacts debt service costs by Sh40 billion.

With the shilling gaining Sh3.62 against the dollar in just a week, Kenya's debt burden has been alleviated by Sh144.8 billion.

However, holders of US dollars have experienced paper losses. For example, a $10,000 holding has shrunk to Sh1.5 million from Sh1.6 million, representing a Sh100,000 loss.

The key driver behind this rally is Kenya's move to buy back part of its maturing $2 billion Eurobond. This action calmed investor jitters and triggered a multi-day inflow of foreign currency.

Last week, Kenya successfully repurchased a portion of the Eurobond as part of a strategy to manage its liabilities and reduce the burden of the upcoming redemption.

Simultaneously, Kenya issued a new Eurobond, raising Sh235.05 billion ($1.05 billion) to finance the buyback.

Analysts believe this partial buyback, with its outcome due Friday, has significantly eased investor concerns about the June maturity, which was previously viewed as a potential Achilles heel for the economy and a barrier to foreign investment.

Foreign investors have responded positively, reallocating capital back into the Kenyan market.

This is evident in the strong bids received for the February infrastructure bond auction, which closed yesterday and raised Sh240.9 billion for the government.

The shilling's impressive rally marks a significant turnaround and offers a glimmer of hope for the Kenyan economy.

However, it remains to be seen whether this momentum can be sustained in the long term, and how the upcoming buyback outcome will impact the market.