Markets & Finance

Forex reserves hit Sh770bn to boost value of Kenya shilling

cbk

Central Bank of Kenya governor Patrick Njoroge. PHOTO | FILE

Foreign exchange reserves kept by the Central Bank of Kenya (CBK) have risen to nearly five months of import cover giving a significant cushion to the shilling.

According to the CBK weekly bulletin the reserves stood at $7.62 billion (Sh770 billion) as at April 22, amounting to 4.96 months of import cover.

This is an increase of 7.7 per cent from $7.07 billion — amounting to 4.5 months of import cover — at the same period last year.

The increase in reserves is also more than Sh100 billion ($1 billion) compared to the level at the height of the shilling’s depreciation crisis last September and October when the regulator had to intervene by injecting various amounts of forex into the market.

The huge supply of forex in the market appears to have contributed to the strengthening of the local currency as commercial banks predict that it is headed for a bull run given that there is low demand for the greenback.

“We anticipate a bullish run for the home unit in the short term as dollar demand remains subdued,” said Commercial Bank of Africa (CBA).

On Tuesday, the shilling rose to a nine-month high against the dollar, quoted at Sh100.80 at some point, showing that the strengthening shilling was gathering momentum.

READ: Kenyan shilling now jumps to nine-month high

CBA said the appreciation of the local unit was linked to the CBK’s liquidity mop-up. The CBK used repurchasing agreements to drain Sh5 billion from the market.

“At the close (on Tuesday), the local unit was quoted 40 cents higher versus the greenback as the Central Bank of Kenya continued with the liquidity mop-up. The monetary authority drained out Sh5 billion through repos,” said the CBA.

The CBK has taken advantage of the strengthening shilling to accumulate foreign exchange reserves even as it has benefited from the dollar-denominated borrowing overseas in the past 18 months and a favourable macroeconomic environment prevailed.

CBK governor Patrick Njoroge recently said lower oil prices, a falling current account deficit and more exports had contributed to the higher levels of reserves.

“There is the impact of lower oil prices that have improved the balance of payments. We see the current account deficit this year closing at eight per cent of GDP. Inflows from tourism and exports like tea and horticulture are strengthening,” said Dr Njoroge.

The CBK boss also said investors had brought significant amounts of foreign cash into the country recently.

“There are also portfolio inflows. Investors are attracted to invest long term because of the favourable environment. The exchange rate has been stable,” said Dr Njoroge.

The monetary authority is keen to ensure that it is not caught flat-footed should there arise another forex crisis as was the case last year and in 2011.