CBK maintains currency reserves at Sh718bn on dollar mop-up plan

The Central Bank of Kenya (CBK) has been buying dollars from the market helping maintain national reserves above the $7 billion level since early December.

The current reserves stand at $7.023 billion (Sh718.6 billion) which is equivalent to 4.5 months of import cover. The proceeds of the syndicated loan taken by the government in October also helped boost the hard currency reserves.

The CBK’s confidence in buying dollars from the market in recent weeks is in sharp contrast with the sales seen in the third quarter of last year when a volatile shilling had sunk to nearly a four-year low of 106 to the greenback.

The shilling has been range-bound between 101.80 and 102.40 since the end of October allowing the CBK breathing space within which to rebuild the reserves.

“Early in the 2015 fourth quarter the government floated the syndicated loan and from that we got dollars with the amount going to the Treasury account in Kenya shillings,” said the CBK Governor Patrick Njoroge last week.

“We have also been buying reserves in the market –intervening in the market to reduce volatility. We fully embrace the floating-rate regime but we will intervene to reduce volatility—so we have been purchasing from the government but also from the market because there have been some instability in terms of strengthening. But we are not defending any rate.”

In mid-October, the reserve levels had fallen below the required four months import cover at $6.25 billion (Sh639.5 billion). This year, there is expected less pressure on the CBK to heavily spend dollars in support of the shilling, expected to be more stable due to a reducing current account deficit.

The CBK sees Kenya’s current account deficit falling to 8.5 per cent of gross domes tic product when the figures for 2015 are released, having stood at 10.4 per cent in 2014.

Lower crude prices at the international market are likely to ease pressure on the import bill, while there is expectation of higher inflows from tourism and agriculture this year.

READ: Lower oil prices set to ease Kenya's import bill in 2016

The country has the option of calling up the precautionary loan facility by the International Monetary Fund in case of a currency shock.

Since the beginning of the year, the shilling has depreciated by a marginal 0.03 per cent. Last week, dealers said the exchange rate held flat as the market watched the CBK’s monetary policy committee meeting, which ultimately resolved to hold key rates level.

“We have seen some balance this week between dollar demand and inflows, thus the exchange rate has not had pressure. The liquidity in the market is however a bit high, and may bring pressure in the next few days when combined with end month dollar demand,” said a commercial bank treasury official.