Foreign exchange reserves kept by the Central Bank of Kenya (CBK) rose by Sh24 billion ($230 million) in just a week, strengthening the regulator’s ability to curb the shilling’s volatility.
The growing reserves come against the backdrop of the shilling gaining against the hard currencies, making it cheaper to accumulate the forex from the domestic market.
The improvement in liquidity conditions has enabled the government to begin borrowing cheaply from the domestic market through short-term instruments after several months of high Treasury bill rates.
Foreign exchange reserves kept by the Central Bank of Kenya (CBK) rose by Sh24 billion ($230 million) in just a week, strengthening the regulator’s ability to curb the shilling’s volatility.
The increase takes the total reserves to Sh713 billion ($6.979 billion), equivalent to about 4.4 months of import cover, taking into account the average of the value imported in the past 36 months.
Analysts attributed the rise in the reserves to inflows from a recent government bond, a syndicated loan and remittances. The Treasury recently floated a five-year bond to raise Sh20 billion, and also took Sh60 billion as the first tranche of a Sh78 billion syndicated loan from overseas commercial banks.
“The improvement in reserves can partly be attributed to increased foreign inflows for government bond in the month, inflows from the syndicated [loan] issued by the Treasury and increased diaspora remittances,” said Cytonn Investments in its latest note to clients.
The growing reserves come against the backdrop of the shilling gaining against the hard currencies, making it cheaper to accumulate the forex from the domestic market.
“During the week ending December 3, 2015, the Kenya shilling exchange rate appreciated against all major international currencies,” said the CBK in its weekly update on the markets.
The shilling was trading at an average of 102.15 units to the greenback last week compared to 102.20 units the previous week. It averaged 153.73 units against the sterling pound, stronger than 155.04 the previous week and an average of 108.20 units to the euro compared to 108.89 the previous week.
The regulator further noted it had, on a net basis, injected a total of Sh6.2 billion into commercial banks in the course of the week.
The liquidity, including that coming from government payments to suppliers, contributed to pushing the overnight average lending rate among commercial banks down to 5.97 per cent from 6.03 per cent in the previous week.
Interbank rates rose to a four-year high of 25.8 per cent in mid-September when depreciation of the shilling heightened and interest rates spiked. This came as the regulator tightened the market in a bid to control the weakening of the shilling.
“The money market was relatively liquid during the week ending December 2, 2015 mainly supported by government payments. Liquidity distribution in the interbank market improved supported by reverse repo purchases,” said the CBK.
The reverse repos involve commercial banks receiving cash from the CBK.
The improvement in liquidity conditions has enabled the government to begin borrowing cheaply from the domestic market through short-term instruments after several months of high Treasury bill rates.
PAYE Tax Calculator
Note: The results are not exact but very close to the actual.
