Shilling not on free fall, says CBK

The Kenyan shilling has declined against the US Dollars to a two-and-a-half-year low. The Central Bank of Kenya on Monday moved to allay fears that the shilling could be on a free fall due to rising insecurity that is a threat to the economy. 

In Summary

• Regulator says that dollar demand to pay dividends is the cause of the current drop in local unit
• CBK reassured the public that the country’s current level of foreign exchange reserves are sufficient to provide adequate cushion against temporary shocks.

By JOSHUA MASINDE
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The Central Bank of Kenya on Monday moved to allay fears that the Kenyan shilling could be on a free fall due to rising insecurity that is a threat to the economy.

 

In a statement, the regulator said recent depreciation of the local currency was triggered by huge demand for the greenback as companies pay dividends to foreign shareholders.

The shilling’s value against the US dollar last week dropped to Sh88 the lowest in two and half years.

“This phenomenon has been observed around this period in the previous years,” said CBK. Yesterday, the local currency closed the day at 87.75/87.95 compared to 87.70/87.90 against the US dollar at the close of trading on Friday.

Increased terrorism attacks have led to the issuance of travel advisories against Kenya plunging the tourism sector into a crisis, and cutting dollar inflows.

Financial analysts have also associated the shilling’s depreciation to prevailing security challenges that are thought to have triggered panic buying by importers.

ADEQUATE CUSHION

CBK, however, reassured the public that the country’s current level of foreign exchange reserves of $6.24 billion (Sh549 billion), equivalent to 4.4 months of import cover, are sufficient to provide adequate cushion against temporary shocks.

“The Central Bank expects the situation to normalise as the impact of seasonal factors dissipates. In the meantime, the bank continues to monitor developments in the market and stands ready to provide support to minimise the volatility of the exchange rate,” it said.

In addition, the CBK noted that proceeds from the planned Eurobond will significantly raise the level of foreign reserves with the exchange rate expected to come under pressure in coming months.

“The Central Bank, therefore, expects the situation to normalise as the impact of seasonal factors dissipates,” the statement read.

Analysts said yesterday’s trading was generally quiet but expected end month demand from importers to put pressure on the shilling again in the week.

The CBK mopped up Sh3 billion from the market yesterday. On Friday, it took Sh7.25 billion from circulation.