Bank of Kigali saw its loan book and deposits rise, and it forecasts a
seven per cent growth in GDP as most banks increase their lending. FILE
By MARTIN LUTHER OKETCH Special Correspondent
In Summary
- New statistics show that central banks from the three countries are holding a combined $14 billion in forex reserves — funds used to give the local currency market the needed buffers. In times of shocks and a volatile market, the central bank intervenes to calm the market and stem out the volatility.
- Usually, central banks participate in the open foreign currency market through the purchase of dollars, which effectively has a bearing on the currency.
Central banks in Kenya, Uganda and Tanzania have
over the past few months been shoring up their forex reserves through
daily purchases to cushion their local currencies from volatility.
New statistics show that central banks from the
three countries are holding a combined $14 billion in forex reserves —
funds used to give the local currency market the needed buffers. In
times of shocks and a volatile market, the central bank intervenes to
calm the market and stem out the volatility.
Data by the Bank of Uganda (BoU) shows that the
regulator increased daily purchases of foreign exchange to $4.9 million
from $3.1 million as the central bank moved to shore up a reserve
position eroded by volatility in global markets and an unscheduled $700
million purchase of fighter jets in 2010.
The Central Bank of Kenya (CBK) said in its latest
report that forex reserves grew from $5.7 billion (4.12 months of
import cover) in July 2013 to $6.2 billion (4.36 months of import cover)
at the end of last month. CBK bought dollars’ worth at least $305
million in the six months to October 2013.
The Bank of Tanzania (BoT) said in its latest
assessment of the economy that forex reserves shrunk to $4.5 billion,
lower than the targeted $4.6 billion, in the year ending November as the
country’s export value dropped by nearly three per cent.
“The general trend has been an increase in the
reserves during the half year to December 2013, both in terms of gross
reserves as well as its equivalent in months of import cover,” said the
CBK in a statement last week.
“Changes in reserve levels may occasionally be
explained purely by changes in the exchange rate between major
currencies such as the euro and sterling pound (for which CBK holds part
of its reserves) against the dollar. A weakening of these currencies
against the dollar will impact negatively on the overall level of
reserves,” said the CBK.
Usually, central banks participate in the open
foreign currency market through the purchase of dollars, which
effectively has a bearing on the currency. Purchases would weaken the
currency as it pushes up demand for the US dollar.
The CBK said the regulator was most active in May
when it purchased dollars worth $191 million. In September, it bought
$117.6 million.
Although Uganda’s foreign currency reserves
position is much better at $3.25 billion than the $2.4 billion it dipped
to in 2008, at only four months of import cover, it is still below the
desired six months equivalent of future imports of goods and services.
Reserve build-up
In November 2013, the BoU purchased $98.0 million
for reserve build-up but sold back $20 million in the same month to
support the local unit.
Uganda’s forex reserves have been growing upward
after suffering a drastic decline amid the 2008 global financial crisis,
which saw them slip to $2.4 billion.
Uganda’s gross international reserves rose from
$2.6 billion in financial year 2011/12 to $2.9 billion in financial year
2012/13 equivalent to 3.9 months of imports.
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