Shilling gets cover as forex reserves hit record levels
The regulator’s data shows this is the first time that the reserves have crossed the $5 billion mark, which is equivalent to an import cover of 4.17 months.
What you need to know:
CBK’s data shows this is the first time that the reserves have crossed the $5 billion mark, which is equivalent to an import cover of 4.17 months.
The Central Bank secured a foreign exchange support loan from the IMF, and has also been actively involved in mopping up dollars from the banking system to build on its reserves.
The build-up has come at a time the shilling has been stable at about 84 units to the dollar since early this year.
The reserves also received a lift in mid-June with the withdrawal of the second instalment of a $600 million syndicated loan from a consortium of international lenders.
Private firms and banks have also been signing huge loan agreements in recent months with the World Bank and other international lenders in the range of tens of millions of dollars.
The Central Bank of Kenya’s stock of foreign currency reserves has risen to a record high of Sh429 billion ($5.103 billion), providing a strong cushion for the shilling nearly one year since the currency sank to historic lows against major world currencies.
The CBK’s latest weekly bulletin shows official foreign exchange reserves stood at $5.103 billion as at August 24, up from $5.08 billion at the end of the previous week.
The regulator’s data shows this is the first time that the reserves have crossed the $5 billion mark, which is equivalent to an import cover of 4.17 months.
“The usable official foreign exchange reserves remained above the statutory four months of import cover,” said CBK in the bulletin.
Adequate foreign exchange reserves are a buffer against weakening of the shilling as they assure traders that there is enough foreign currency to pay for imports.
In mid October last year when the shilling dropped to a record low of 107 units to the dollar, the forex reserves had shrunk to $3.8 billion, equivalent to 3.46 months of import cover.
The Central Bank secured a foreign exchange support loan from the IMF, and has also been actively involved in mopping up dollars from the banking system to build on its reserves.
The build-up has come at a time the shilling has been stable at about 84 units to the dollar since early this year.
Private firms and banks have also been signing huge loan agreements in recent months with the World Bank and other international lenders in the range of tens of millions of dollars.
Analysts said there had been dollar inflows from the traditional sources including exports and remittances as well as foreign investments.
“We have seen quite a bit of strengthening of the shilling in recent weeks and we believe it will strengthen in the short-term, but it is likely to weaken in the medium term, beyond a month,” said Duncan Kinuthia, head of treasury at Commercial Bank of Africa.
Jeremiah Kendagor, head of trading at the KCB, said he was expecting the shilling to weaken going forward because of the end-month demand for dollars as well as falling interest rates.
In the past few months, the yield on the Treasury paper has come down with the 91-day paper now standing at 8.583 per cent, down from 13.226 per cent at the end of July this year.
