CBK forex reserves rebound to hit the 4.5 months import cover

Foreign exchange reserves held by the Central Bank of Kenya rose $57 million (Sh5.83 billion) last week to hit the 4.52 months import cover level for the first time since the beginning of April.

CBK’s reserves now stand at $7.103 billion, the highest level since April 2, with money market analysts saying the prevailing low dollar demand makes it the optimum time for CBK to buy some hard currency from the market.

The reserves have increased for three straight weeks since November 27, with the import cover jumping from 4.3 months’ worth to 4.52 months on a gain of $354 million.

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“The extra reserves could be coming from direct buying from the market as the dollar becomes cheaper, or from disbursements from external donors,” said a commercial bank treasury official.

“There is also very little demand for dollars from importers, who have largely slowed their businesses for the festivities, which would allow the regulator to buy dollars without risk of squeezing out the market and putting the shilling under pressure.”

Tea and tourism earnings also provide regular dollar flows into the country, which CBK then buys from the market.

There is also foreign exchange inflows into the primary bonds market through the ongoing sale of the nine-year infrastructure bond, with the Treasury returning to the market seeking Sh16 billion following the under-subscription of the initial sale.

The shilling has been relatively flat in terms of movement against the dollar over the last few weeks, currently exchanging at 102.32 units to the dollar.

The rebound in the reserves will thus serve to reassure the money market that the regulator has enough muscle to intervene in case of volatility, thus discouraging speculative trading in the dollar.

Kenya is also yet to draw from the Sh65 billion precautionary facility already approved by the International Monetary Fund (IMF), which gives further backing to the shilling that is 12.8 per cent down on the dollar since the beginning of the year.

The import cover had fallen below the four-month level between mid-September and mid-October, when the shilling had depreciated markedly (by 17 per cent year to date) to the dollar compared to the rest of the year.