Foreign reserve holdings at the Central Bank of Kenya (CBK) have fallen by $154 million (Sh16 billion) this month, with analysts saying it indicates the banking industry regulator has been stepping in to prevent exchange rate volatility.
The regular interest payments on Kenya’s Eurobond debt also fall due every June and December, with the payments coming out of the official reserves.
CBK’s latest weekly bulletin shows that the reserves now stand at $8.105 billion (Sh840 billion), equivalent to 5.36 months of import cover, down from $8.259 billion (Sh856 billion) or 5.46 months of cover at the beginning of the month.
“On a year-to-date basis, the shilling has depreciated against the dollar by 1.1 per cent. The Central Bank continues to support it, as can be seen by the slight decline in the forex reserves over the last few weeks,” says Cytonn Investments in its latest markets report.
CBK sells dollars into the market when the shilling becomes volatile with a bias towards weakening and buys dollars when the currency strengthens abnormally.
However, despite reserves and shilling June fall, Kenya’s reserves have largely held above the $8 billion level for the past two-and-a-half months.
The reserves rose towards the end of March after the Treasury drew down foreign loans, which included part proceeds from an $800 million syndicated loan from four international banks and a $500 million facility from the African Export-Import Bank (Afreximbank).
The country also retains a standby precautionary facility of $1.5 billion from the International Monetary Fund (IMF), which can be called upon in case of a currency shock. This facility is the equivalent of an additional month of import cover.
Diaspora remittances also remain solid, having grown by four per cent to $432.6 million (Sh44.8 billion) for the first quarter of the year compared to a similar period in 2016.