Shilling gets boost from second syndicated loan tranche
Posted Monday, June 25 2012 at 20:47
The Treasury has received the second tranche of the Sh50 billion ($600 million) loan borrowed from international banks, helping to boost foreign exchange reserves to above the recommended minimum of four months of import cover.
Weekly data released by the Central Bank of Kenya shows forex reserves rose to Sh394.8 billion last week equivalent to 4.18 months of import cover, from Sh364.8 billion in the previous week equivalent to 3.86 months of import cover.
“The increase in the foreign exchange reserves reflect receipt by the government of the second tranche syndicated loan amounting to $360 million,” says CBK in the report.
The Treasury had already earlier this month accessed $240 million first tranche of the loan.
Adequate foreign exchange reserves cushion the shilling from depreciation as they are seen as a buffer for the country’s import needs.
The shilling slipped against the dollar on Monday on demand from banks and the energy sector even as the dollar remained strong against major currencies.
Commercial banks quoted the shilling at 84.30 per dollar, slightly down from the 84.05 at which it closed on Friday.
“Importers from the energy sector were in the market today (Monday) to buy dollars to take advantage of better rates,” said Chris Muiga a senior dealer at Kenya Commercial Bank.
The shilling had been gaining for most of last week until on Friday when Treasury said it had released Sh7 billion to pay teachers.
Inter-bank lending rates rose from 16 per cent on Monday last week to 18 per cent on Friday due to tightened liquidity as companies paid their instalment taxes.
The disbursement of Sh7 billion by Treasury to avert teachers strike helped to ease liquidity which had since tightened last week due to tax payments by cooperates. “Liquidity has improved and this is also making the shilling to lose,” said Mr Muiga.
Commercial banks also started buying dollars ahead of end-month corporate demand putting more pressure on the shilling.
The dollar held on to last week’s gains against major currencies on expectations that the next European summit on Thursday will not yield substantial results to avert the crisis.
Market players however said that the fundamentals are still in favour of a weaker shilling.