Forex reserves up for third month to Sh522 billion
CBK has maintained reserves equal to four-month import cover. FILE
What you need to know:
Rise provides crucial cushion to the shilling which touched 88 level recently.
Central Bank of Kenya (CBK) has maintained reserves equal to four-month import cover for the third month in a row, nearly hitting $6 billion (Sh522 billion) level.
The monetary authority has now accumulated an extra $372 million in the year to date having been below the legal cover for four months between February and May.
CBK efforts are supposed to cushion the local currency especially with the crisis of late 2011, when foreign exchange shortage hit the market and caused the Kenya shilling to sink to a historic low of Sh107 to the dollar.
According to the latest CBK Weekly Bulletin, the reserves stood at 4.12 months of import cover at $5.741 billion up from $5.369 billion. Data shows that the Kenyan market transacts up to $500 million a day and up to $15 billion a month.
The higher level of the reserves bolsters the local unit as it can be used to smooth exchange rate volatility that is normally associated with mismatch between local demand and supply for foreign currency.
Traders believe the CBK has enough muscle to intervene successfully in the market to stem volatility.
It did this on Monday when it injected $148 million (Sh18 billion ) to enable banks to afford buying dollars in the interbank market. The market took up Sh12.9 billion.
“The central bank has successfully been stepping in and restored stability whenever there has been volatility. It put in Sh18 billion today (Monday) and the market took up Sh12.9 billion. It also has put in dollars when needed,” said Sheikh Mehran, a senior trader at Kenya Commercial Bank in Nairobi.
The shilling has been volatile due to high dollar demand as well as the high current account deficit (gap between exports and imports) at more than 10 per cent.
“The usable official foreign exchange reserves held by Central Bank [stood] at $5.741 billion equivalent to 4.10 months of import cover as at August 8, 2013… The months of import cover remain above the statutory minimum of four months,” said the CBK bulletin.
In recent times, the CBK has been trying to explain its stand on the exchange rate following volatility witnessed when the Treasury yields fell.
The yields have, however, begun to rise. A commercial banking source, who declined to be named, however said the CBK did not appear to have a good idea on how to handle the treasury bill rates since they started rising a few weeks ago.
“I don’t think the CBK knows what to do. We have seen its statement, but it doesn’t say why yields have risen all over again, yet their CBR is down. Is this CBR useless?” asked the source.
The value of the Kenya shilling has recently come under intense scrutiny after it depreciated to nearly Sh88 to the dollar from just about Sh84 for the better part of the year, forcing the CBK to step in to curb volatility.
Mr Mehran said he expects the shilling to tend towards Sh87.30 and Sh88 to the dollar in the coming week.
In a statement posted on its website, the CBK rejected the notion that there was any manipulation of the local currency and emphasised that its value is a function of economic factors including trade, production and investment.
