Forex reserves fall to four-month low

CBK governor Patrick Njoroge during a past briefing. FILE PHOTO | NMG 

By GEOFFREY IRUNGU
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Summary

• The reserves stood at $8.985 billion or Sh931.7 billion, the lowest level since May 23 when they stood at $7.981 billion.
• The latest decline in reserves continues the trend seen in recent months.
• The fall started on July 18 when the figure stood at $9.747 billion after a rise in the preceding week, and have continued every week to date.

Official foreign exchange reserves dipped to a four-month low in the week to September 26, making it the first time that they fell below $9 billion since the sale of the third Eurobond in May.

Data from the Central Bank of Kenya (CBK) indicates that the reserves stood at $8.985 billion or Sh931.7 billion, the lowest level since May 23 when they stood at $7.981 billion.

The third Eurobond cash was reflected in the CBK’s account just a week after May 23 when the total reserves jumped to a new high of $10.06 billion when the regulator bought the dollars from the Treasury. The Eurobond raised Sh210 billion ($2 billion) thereby helping increase the forex pile and stabilise the local currency.

The latest decline in reserves continues the trend seen in recent months. The fall started on July 18 when the figure stood at $9.747 billion after a rise in the preceding week, and have continued every week to date.

The CBK has lately been facing pressure to keep the currency stable, mopping tens of billions of shillings from the market. Last week, the CBK went into the market with a term auction deposit (TAD) offering 8.98 percent, which is close to the maximum allowable level or the Central Bank Rate of 9.00 percent.

Though the CBK uses its foreign exchange reserves to buy local currency from the market or sell forex to banks, it does not disclose when it makes such transactions. The CBK also spends forex in repaying foreign debt, which stood at Sh3.02 trillion or 52 percent of total public debt as at the end of June this year.

Despite the recent fall in reserves, the CBK and some analysts maintained that the forex levels are enough to provide adequate cover for import costs, noting the minimum statutory and regional limits were met.

“The CBK usable foreign exchange reserves remained adequate at $8,985 million (5.61 months of import cover) as at September 26. 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,” said the CBK.

Investment firm Cytonn echoed CBK’s sentiments saying: “High levels of forex reserves continue to provide adequate cover and a buffer against short-term shocks in the foreign exchange market.”