Foreign exchange reserves fell 2.34 per cent week-on-week to $7.52 billion last Thursday—equivalent to five months of import cover—from $7.703 billion.
This underlines the extent to which the CBK has injected the dollars into the market to iron out volatility of the shilling.
The currency exchanged at an average of 103.89 against the greenback during the week, only slightly changed from 103.88 seven days earlier.
Foreign exchange reserves dropped for the eighth week in a row on rising demand for the dollar ahead of the Tuesday’s polls, Central Bank of Kenya (CBK) data shows.
The reserves fell 2.34 per cent week-on-week to $7.52 billion last Thursday—equivalent to five months of import cover—from $7.703 billion, underlining the extent to which the CBK has injected the dollars into the market to iron out volatility of the shilling.
“The Kenya shilling exchange rate weakened marginally against major international currencies during the week ending August 3, 2017,” the CBK says in the current weekly bulletin.
The currency exchanged at an average of 103.89 against the greenback during the week, only slightly changed from 103.88 seven days earlier.
The shilling, however, fell 1.26 per cent against the sterling pound to 136.90 and 1.33 per cent to the euro to average 122.41 compared to the previous week.
The shilling was fairly stable a day to the election trading at 104 units to the dollar in early hours on Monday, reflecting the expectations of analysts.
Analysts polled by the Business Daily on Friday said they did not expect panicky dollar buys by importers before and after the polls, provided the process is peaceful.
“There’s also confidence in the Central Bank (of Kenya) because they continue to show they are committed and willing to sell if the currency becomes volatile,” Stanbic Bank’s economist for East Africa Jibran Qureishi had said.
“The reason demand is so soft is not solely because of the election. It’s also a function of drought and interest cap (which have slowed production).
I am not saying the demand won’t pick, I just don’t think it will pick up to an extent it becomes problematic.”
Head of research at Standard Investment Bank Francis Mwangi said besides adequate reserves at CBK and remittance flows, there was little outflows on the Nairobi Securities Exchange by foreign investors before the election and slower growth in import bill due to low oil prices.
“I am not seeing any immediate change in those factors and I think it (shilling) will hold ground (after election),” Mr Mwangi said.
The forex reserves remain above the statutory requirement of four months of import cover despite the decline.
Adequate reserves are important in reassuring the market over the shilling. However, Kenya is also holding billions of dollars in IMF facility.
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