Money Markets
By GEOFFREY IRUNGU, girungu@ke.nationmedia.com
In Summary
- The shilling exchange rate has already touched Sh95 to the greenback, the lowest level since November 2011.
- Besides the global strength of the dollar, analysts say the current dividend-payment season is affecting the value of the local unit because investors are repatriating cash abroad.
- The depreciation spells boom times for exporters as they receive more shillings for every dollar worth of goods sold to foreigners.
The Central Bank of Kenya (CBK) foreign exchange
reserves have contracted by Sh51 billion ($545 million) in the past four
months as dollars were used to shore up the shilling and for debt
servicing. A revaluation of the reserves as the shilling weakened also
affected the war chest.
Forex reserves stood at Sh646.7 billion ($6.88 billion) last
Friday down from Sh697.95 billion ($7.425 billion) as at end of last
December according to the monetary policy authority. The reserves had
risen from below $5 billion on the back of a $2.75 billion sovereign
bond raised last year.
The local currency exchange rate has already touched Sh95 to the greenback, the lowest level since November 2011.
“Foreign reserves have been declining on account of
revaluation losses … large external government payments, elevated
foreign exchange demands from the private sector leading to periodic
interventions in the foreign exchange market,” said the CBK in response
to Business Daily queries.
The CBK however declined to provide a breakdown of how much was used and for what purpose.
It said the reserves were still above the
four-month statutory import cover and added that it was not out to use
the forex to defend a particular exchange rate but was merely smoothing
out volatility.
“The Central Bank of Kenya pursues a market
determined exchange rate policy and at no time has it defended a
particular Kenya shilling exchange rate. …Its participation in the
foreign exchange market is aimed at reducing volatility, that is, sudden
depreciation or appreciation in the Kenya shilling exchange rate,” said
the CBK.
Besides the global strength of the dollar, analysts
say the current dividend-payment season is affecting the value of the
local unit because investors are repatriating cash abroad.
UK citizens, who own major stakes in listed
multinationals, were to repatriate Sh25 billion in dividends for the
financial year 2014.
The depreciation spells boom times for exporters as
they receive more shillings for every dollar worth of goods sold to
foreigners. But it also penalises importers who have to buy more
expensive goods in the international markets.
The CBK might spend more forex in stabilising the
local currency as market players said its fundamentals pointed to a
weakening bias in the coming days.
“We have seen the CBK come into the market to
inject dollars in the past, but what is happening generally is that the
shilling has a bias for weakening,” said Sheikh Mehran, senior trader at
I&M Bank.
Mr Mehran pointed to the global strengthening of
the dollar and corporate demand as well as repatriation of dividends by
foreign companies as factors weakening the shilling.
Analysts in investment advisory business also
concurred with the argument on the repatriation of dividends but added
that confidence in the wake of terrorist attacks was also affecting the
local unit.
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