On Thursday the CBK sold dollars in the market to boost the local currency adding to open market operations that had tightened liquidity last week.
Liquidity last week tightened further after the CBK made a net withdrawal of Sh7.3 billion.
The excess reserves had stood at Sh11.5 billion a month ago, before falling sharply starting in the last week of June.
The Central Bank of Kenya (CBK) is increasingly intervening in the market through sale of dollars and withdrawal of liquidity amid depreciation pressure on the shilling.
On Thursday the CBK sold dollars in the market to boost the local currency adding to open market operations that had tightened liquidity last week.
“The fact that it is holding (shilling) at this level is on the back of central intervention,” a trader at one commercial bank said. Commercial banks quoted the shilling at 103.75/85 to the dollar, compared with Wednesday’s close of 103.65/85, Reuters reported.
Liquidity last week tightened further after the CBK made a net withdrawal of Sh7.3 billion.
Analysts say that the regulator has been cutting back the liquidity in the market as one of the ways of preventing shilling volatility, with the currency weakening to touch the psychological level of 104 against the dollar a week ago.
Excess reserves held by commercial banks have halved in the space of a month to Sh5.5 billion, indicating that some of the smaller lenders may be struggling for cash. Banks would normally cut their deposits at the central bank in order to meet liquidity needs.
“The Central Bank intervened with liquidity withdrawals in its open market operations via repos to help shore up the shilling. Commercial banks excess reserves above 5.25 per cent knocked off Sh 0.5 billion during the course of the week to close at Sh5.5 billion,” said Genghis Capital in a fixed income note.
The excess reserves had stood at Sh11.5 billion a month ago, before falling sharply starting in the last week of June.
Banks are required to keep 5.25 per cent of their total customer deposits with the CBK for prudential purposes— to counter the risk that come with all cash being held only in the individual financial institutions.
In the money market last week, the bulk of the liquidity withdrawal came through tax transfer from commercial banks at Sh25 billion, settlement for primary Treasury bill sales (for the week ending July 7) at Sh24.9 billion, term auction deposits of Sh19.8 billion and repo sales of Sh12 billion.
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