The Central Bank of Kenya building in Nairobi. FILE PHOTO | NMG
Summary
- This has strengthened CBK’s muscle in preventing exchange rate volatility.
- Eurobond loans have proven useful to CBK in boosting its foreign exchange coffers.
- Each of the three issuances has resulted in a jump in the reserves to record highs and been useful in allowing CBK enough headroom to defend the shilling against occasional volatility.
Proceeds of the Sh210 billion Eurobond issue have ballooned
Central Bank of Kenya (CBK) official foreign exchange reserves to a
record $10.06 billion (over Sh1 trillion) strengthening the regulator’s
muscle in preventing exchange rate volatility.
The CBK
normally buys the foreign currency proceeds of Treasury’s external
loans, in turn crediting the exchequer account with the equivalent in
shillings for use in the domestic economy.
In addition
to the Eurobond proceeds, CBK is likely to buy the $750 million (Sh75
billion) from the World Bank loan the government took last week once it
is drawn down.
“The CBK usable foreign exchange
reserves were at an all-time high of $10.06 billion (Sh1.01 trillion/6.4
months of import cover) as at May 30, as a result of the government
successful issuance of a $2.1 billion Eurobond in May,” said CBK in the
latest weekly bulletin.
“This meets the CBK’s statutory
requirement to endeavour to maintain at least four months of import
cover and the EAC region’s convergence criteria of 4.5 months of import
cover.”
Eurobond loans have proven useful to CBK in boosting its foreign
exchange coffers. Each of the three issuances has resulted in a jump in
the reserves to record highs and been useful in allowing CBK enough
headroom to defend the shilling against occasional volatility.
The government also draws on these reserves to service foreign loans.
This
year, there are significant maturities and interest payments to be
made, meaning that CBK is likely to see a gradual slide in the reserves
going to the end of the year.
The $750 million (Sh75
billion) five-year tranche of the 2014 matures later this month, while
Kenya will later in the year also begin making payments on the principal
of the loans taken from China to build the standard gauge railway.
These
reserves are also likely to come in handy to stave off any volatility
in the exchange rate that may arise due to the demonetisation of the
currency in the shift to new generation bank notes. There are 217.6
million notes of the Sh1,000 denomination set to be phased out by the
end of September.
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