Time flies with great content! Renew in to keep enjoying all our premium content.
CBK moves to boost shilling with Sh14.3bn greenback sale
Central Bank of Kenya building. Analysts expect the CBK to cut the benchmark rate by one percentage point. Photo/ File
What you need to know:
The intervention through sale of dollars worth about Sh14.3 billion came just days ahead of the Monetary Policy Committee meeting scheduled for Thursday.
The banking sector regulator stepped into the money market Monday to curb volatility of the shilling, which saw it drop to a seven-month low last week.
The intervention through sale of dollars worth about Sh14.3 billion came just days ahead of the Monetary Policy Committee meeting scheduled for Thursday.
Commercial banks said Monday that the currency had traded at Sh86.75 to the dollar in the morning due to high demand for the US currency but the Central Bank of Kenya (CBK) intervention strengthened it to Sh86.50 at the close of trading.
The currency last traded at this level on May 31 last year, according to Reuters data. The regulator mopped up Sh7.1 billion in repurchase agreements and Sh7.2 billion in term deposits.
“It was a move to ensure that there is no significant volatility in the market,” said Ignatius Chicha, a treasurer at Citibank.
He predicted that the regulator may only marginally cut the policy lending rate in Thursday’s meeting as it is happy with the current interest rates.
Under pressure
Mr Chicha estimated that the CBK could cut the benchmark rate by one percentage point or reduce the cost of money to banks by reducing the margin of borrowing through the overnight window.
He, however, said that it could be the last rate cut for the regulator given that inflation numbers may not go down further.
Foreign exchange reserves have risen significantly in recent months, giving a crucial cushion to the shilling.
The CBK data shows that the reserves averaged 4.23 months of import cover in the month of December, the highest since September when it stood at an average of 4.26 months.
Dealers said that the currency is under pressure to trade at Sh87 to the greenback. When the International Monetary Fund loaned Kenya some $110.5 million last November as part of a $760 million loan package, one of the key conditions in the agreement was for the CBK to accumulate reserves whenever it had the capacity.
Analysts expect the inflation rate to start moving up as rains subside and General Election jitters rise. The polls are also expected to boost spending, resulting in inflationary tendencies.
Last year, was characterised by high inflows of foreign direct investments, rising diaspora remittances which helped to offset a decline in exports and a drop in tourism numbers.
