Forex reserves hit new low as CBK shores up the shilling

nairobi The Central Bank of Kenya headquarters. FILE PHOTO | NMG 

By CONSTANT MUNDA

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Summary

• The CBK says in the latest weekly bulletin that the country’s forex reserves, largely in US dollars, dropped by 100 basis points week-on-week to $7.703 billion (Sh800.42 billion) or an equivalent of 5.12 months of import cover.
• The pressure on the shilling has largely been from increased imports of duty-free maize and sugar to bridge a drought-induced deficit that saw prices shoot through the roof, hitting households hard.
• The shilling remained steady against the greenback last week at 103.88 units compared to 103.92 the previous week, and opened trade yesterday at an indicative value of 103.91 — unchanged from Friday’s levels.

Foreign exchange reserves have fallen to the lowest level since March 16 at $6.973 billion (Sh724.56 billion), underlining increased activity by Central Bank of Kenya (CBK) to stabilise the shilling and debt payment.

The CBK says in the latest weekly bulletin that the country’s forex reserves, largely in US dollars, dropped by 100 basis points week-on-week to $7.703 billion (Sh800.42 billion) or an equivalent of 5.12 months of import cover.

This is a $606 million (Sh62.97 billion) decline since April 27 when the reserves hit a record $8.309 billion (Sh863.39 billion), indicating the extent to which the CBK has sold dollars to iron out adverse volatility in the forex market.

READ: Remittances, tourism rise cushion reserves

The pressure on the shilling has largely been from increased imports of duty-free maize and sugar to bridge a drought-induced deficit that saw prices shoot through the roof, hitting households hard.

“On a year to date basis, the shilling has depreciated against the dollar by 1.4 per cent.

‘‘In our view, the shilling should remain relatively stable in the short term, supported by CBK’s activity, with the forex reserve levels currently at $ 7.7 billion (equivalent to 5.1 months of import cover),” analysts at Cytonn Investments wrote in their weekly report. The local currency has also borne the weight of debt servicing.

READ: Import of cereals eat into forex reserves

The shilling remained steady against the greenback last week at 103.88 units compared to 103.92 the previous week, and opened trade yesterday at an indicative value of 103.91 — unchanged from Friday’s levels. Commercial Bank of Africa’s head of treasury Raphael Agung said in an earlier interview that he expected the shilling to remain stable for the remainder of the year on strong diaspora remittance flows and forex reserves.

The reserves remain above the statutory requirement of four months of import cover, while remittances rose 3.8 per cent to $732.704 million (Sh76.135 billion) compared with $705.866 million (Sh73.346 billion) a year earlier.

Dollar demand has largely been muted because of low oil prices, Mr Agung said.

“All through this year, the currency has been well-matched on either side and there’s no cause for worry at least in the short term,” he said.

The increased dollar stock in late April through early May was driven by increased foreign loan inflows.

These were $986.9 million (Sh102.55 billion) in loans from the Chinese government, $800 million (Sh83.13 billion) syndicated commercial loan and $450 million (Sh46.76 billion) loan from Preferential Trade Area and African Export Import Bank, according to the Treasury.

READ: National reserves at 3-month low on huge dollar outflow