Forex reserves rise signals drop in CBK market activity

The Central Bank of Kenya (CBK) building in Nairobi. FILE PHOTO | NMG 

By CONSTANT MUNDA

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Summary

• This was the first increase since the week ending May 31 when the reserves were at $8.26 billion (Sh852.18 billion).
• The forex reserves, however, remain above the statutory requirement of four months of import cover.
• The shilling remained steady to the dollar for the second day in a row on Tuesday, exchanging at an average of 103.17 levels in early trade, largely unchanged from 103.15 on Monday, according to the CBK’s indicative rates. The Tuesday rate largely held to Thursday.

Kenya’s foreign exchange reserves last week rose for the first time in 11 weeks reflecting reduced Central Bank of Kenya (CBK) activity in the market.

The forex reserves increase also reflects a more stable shilling.

The dollar stock rose by a marginal 0.54 per cent to $7.46 billion (Sh769.65 billion) or 4.96 months of import cover from $7.42 billion (Sh764.52 billion) in the week ending August 17, latest CBK data shows.

This was the first increase since the week ending May 31 when the reserves were at $8.26 billion (Sh852.18 billion).

The forex reserves, however, remain above the statutory requirement of four months of import cover.

Besides imports, the CBK uses the reserves to iron out adverse volatility on the shilling by selling the greenback to ensure the demand for the dollar does not significantly outstrip supply. The local unit appreciated by 0.5 per cent week-on-week against the dollar last week.

“The performance of the Kenya shilling against the US dollar primarily reflected unwinding of long dollar positions by commercial banks on the back of continued positive sentiments following the peaceful General Election,” the CBK said in its weekly market report.

READ: Kenya shilling slightly firmer, eye on political developments

The shilling remained steady to the dollar for the second day in a row on Tuesday, exchanging at an average of 103.17 levels in early trade, largely unchanged from 103.15 on Monday, according to the CBK’s indicative rates. The Tuesday rate largely held to Thursday.

The shilling last traded at these levels on May 9 when it averaged 103.17 units.

“In months leading up to August, we have seen forex reserves decline significantly from $ 8.3 billion at the peak in April this year, but we expect this (present) level  to be maintained as the shilling regains stability, supported by expected inflows from tourism, tea and horticulture exports and diaspora remittances,” analysts at Cytonn Investments said in a weekly report.