Central bank unlikely to use IMF loan as reserves hit one-year high

Central Bank of Kenya headquarters in Nairobi. PHOTO | FILE 

By OTIATO GUGUYU

In Summary

• Foreign exchange reserves have touched $7.7 million which is equivalent to 5.01 months of import cover, a high last seen in December 2014.

The Central Bank of Kenya (CBK) is unlikely to draw money from the International Monetary Fund’s (IMF) precautionary credit facility as foreign exchange reserves soar to a one-and-a-half-year high, analysts say.

According to the latest CBK weekly bulletin the reserves have touched $7.7 million which is equivalent to 5.01 months of import cover, a high last seen in December 2014.

The shilling, which the CBK mean-rated at 100.6 against the dollar Thursday, an almost nine-month high, has gained ground since it touched 106.1 in September last year.

“The CBK has more power and leverage for monetary policy action when it needs to bring about stability, so it begs the question whether they will need to draw from the IMF facility,” CfC Stanbic Bank regional economist, Jibran Qureishi said.

Kenya in March secured a new loan from the IMF totalling Sh153 billion ($1.5 billion) to be utilised within two years in case of external shocks.

According to the IMF, Kenyan authorities don’t intend to draw the precautionary facility “unless exogenous shocks lead to an actual balance of payments need”. The country similarly did not draw from the previous three-year facility.

A stable shilling, narrowing current account deficit and the accumulated foreign currency reserves have reduced pressure on the CBK helping ensure it is not caught flat-footed should another forex crisis occur, as was the case last year and in 2011.

“The biggest actual reason the CBK might draw on IMF lines is if a sudden requirement for cash occurred. In my opinion the CBK needs to release more details on the terms of that facility so we know what it is for,” Deepak Dave of Riverside Capital, a markets debt expert said