The national foreign currency reserves rose to a record Sh676 billion ($7.515 billion). PHOTO | FILE
By GEORGE NGIGI
In Summary
- The shilling is trading at a three-year low to the dollar of Sh90.70 amidst sluggish market activity.
The national foreign currency reserves rose to a
record Sh676 billion ($7.515 billion), following absorption of forex
raised from re-opening the sovereign bond.
Central Bank of Kenya’s (CBK) latest weekly bulletin shows
the official reserves shot up by Sh71 billion ($784 million) between
Monday and Wednesday last week to reverse a two-month decline.
The increase is a net effect of borrowing Sh67.5
billion ($750 million) in November by the Treasury from the
international markets through reopening (extra borrowing) of its
sovereign bond listed on the Irish Securities Exchange. The cash was
delivered on December 3, but is only shown as usable reserves when the
government spends it. This means it is changed into Kenya shillings for
payments in the local economy and the forex surrendered to the CBK.
The stock of foreign currency is equivalent to an
import cover of 4.9 months, the largest cover the country has ever
recorded. The shilling is, however, trading at a three-year low to the
dollar of 90.70 units despite the ample cover amidst sluggish activity.
“The supply side of the dollar has had a lot of
challenges, especially from insecurity, which has impacted tourism, and a
decline in tea prices. On the other hand demand has not gone down with
the current account deficit continuing to widen,” said Bank of Africa
head of treasury Philip Wambua.
The stock pile is seen to have come at a good time
as dealers expect the shilling to be under pressure in the medium term
given low-dollar inflows from traditional sources amidst high demand by
corporates.
“We have seen the shilling break the 90.50 levels
which means it may test higher levels. There is demand trickling in from
typical end of month obligations for telecoms and oil companies,” said a
senior dealer with a commercial bank.
Adequate forex reserves are a buffer against
weakening of the shilling as it assures traders of enough foreign
currency to pay for imports. The shilling has depreciated 4.5 per cent
against the greenback since the beginning of the year. The contraction
has also come amidst general global appreciation of the dollar.
The Treasury has applied for a precautionary
facility from International Monetary Fund to protect the shilling in
case of external or internal shocks as witnessed in 2011.
CBK’s stock of foreign currency had shrunk by Sh55
billion ($617 million) in the three months from mid-September attributed
to sale of dollars in the open market to prop the shilling and make
foreign currency payments on behalf of the Treasury.
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