Kenya’s central bank bought dollars on the foreign exchange market on Thursday to curb volatility, traders said, as the shilling rocketed to its strongest level since June 2023.

The central bank says it only intervenes to smooth out volatility when the shilling is moving too fast in either direction and that it has no preferred level for the currency.

At one point on Thursday the shilling was up almost 8 per cent  on the day, bid as strong as 139.00 to the US dollar, LSEG data showed, in a rally fuelled by foreign inflows into Kenyan domestic debt and the resolution of a $2 billion Eurobond maturing in June.

After the central bank intervened, the shilling gave back some gains to be bid at 141.00, still up more than 6 per cent from Wednesday’s close.

“The central bank showed up to buy, so I think they don’t want too much volatility. If they hadn’t come in we would probably be looking at levels of maybe 130 because everybody knows offshore inflows are coming,” one trader said.

“That is a strong signal that they (the central bank) want the currency to stabilise. It has to be gradual.”

This week, Kenya sold a new $1.5 billion Eurobond maturing in 2031 which it will use to buy back via a tender offer a large chunk of the $2 billion bond due in June.

The government also sold a 70 billion shilling infrastructure bond, receiving over 288 billion shillings of bids, a 412 per cent subscription rate, with strong offshore investor participation.

The Kenyan shilling extended gains on Wednesday, hitting its strongest in more than three months as confidence the government would pay off a Eurobond maturing in June buoyed investor appetite.

The shilling strengthened over 3 per cent against the US dollar to reach 150.00/151.00, a level it last traded at on October 26, compared with Tuesday’s close of 155.50/156.50 to the dollar, LSEG data showed.

Earlier this week Kenya sold a new $1.5 billion Eurobond maturing in 2031 which it will use to buy back via a tender offer a large chunk of the $2 billion international bond due in June.

One trader said confidence the 2024 Eurobond would be repaid had helped stop panic buying of foreign currency that has seen the shilling set repeated record lows since late 2021.

Other factors supporting the currency include foreign inflows into a 70 billion shilling infrastructure bond on sale and the central bank talking up the shilling as it raised interest rates again last week.

The tender offer for the 2024 Eurobond expires on Wednesday, with the results expected on Thursday.

• A Reuters report