Pandemic slashes forex reserves to two-year low

Central Bank of Kenya. FILE PHOTO | NMG 

By TIMOTHY ODINGA
More by this Author

Summary

• The Central Bank of Kenya’s foreign exchange reserves fell to a more than two-year low last week closing Friday at $7.858 billion (Sh832.9bn billion).
• This is the lowest level since early March 2018 when the stock of dollars was worth $7.15 billion (Sh729.81 billion).
• The reserves, which have been on a steady falling streak can now only cover 4.75 months of import. Since the start of the year, the reserves have now fallen by $900 million, according to the regulator’s weekly bulletin.

The Central Bank of Kenya’s foreign exchange reserves fell to a more than two-year low last week closing Friday at $7.858 billion (Sh832.9bn billion).

This is the lowest level since early March 2018 when the stock of dollars was worth $7.15 billion (Sh729.81 billion).

The reserves, which have been on a steady falling streak can now only cover 4.75 months of import. Since the start of the year, the reserves have now fallen by $900 million, according to the regulator’s weekly bulletin.

In the release, the Central Bank, however, remains optimistic on the state of affairs.

“Usable foreign exchange reserves remained adequate at $7.858 billion,” said the bank.

The statutory requirement is that the government must maintain at least four months of import cover, meaning the current level is still adequate.

“This meets the CBK’s statutory requirement to endeavour to maintain at least four months of import cover.” added the Central Bank.

The erosion has rolled back the regulator’s attempt to stack up dollars from the windfall of lower oil prices, after announcing a dollar buying programme a month ago.

The decline comes as the Central Bank has been forced to sell the dollars and mop up shillings in the local market to maintain stability.

The local currency fell to an all-time low on Thursday last week closing at 107.2 against the greenback.

The depreciation has been blamed largely on the Covid-19 pandemic that has ravaged economies worldwide putting pressure on currencies as investors steer clear from soft currencies.

“The shilling has remained under pressure since mid-march when the country reported its first case of Covid-19.

“Foreign investor outflows have increased and CBK has used its forex reserves in a bid to support the shilling,” said AIB capital in a note.

Analysts have blamed the weakening of the local currency on reduced international travel, tourism and exports, which have slowed down dollar inflows at a time when remittance have been hurt by a downturn in source markets.

Forex reserves are essential as they help protect local currencies during economic shocks which see most people opting to offload them for stronger and more stable currencies.