The Central Bank of Kenya (CBK) has rubbished concerns that persistent dollar shortages are triggering the emergence of a parallel exchange rate where lenders buy and sell well above the printed official rate.
CBK governor Patrick Njoroge scoffed at claims by manufacturers that constraints in dollar supply were forcing them to buy the greenback at more than Sh120 compared to the central bank’s official average exchange rate of Sh116.84 per dollar as of Monday.
Dr Njoroge said the foreign exchange market has enough dollars to meet demand from importers and corporates.
“The [forex] market generates and distributes something like $2 billion every month. So if you have somebody or a sector which is importing $90 million or $100 million, I think that’s nowhere near the $2 billion that we are putting out there,” the CBK boss said.
“They should understand that they are small in that sense and sort of go to the market like everyone else. There are no favourites in the market. Follow the rules of the market and everything will be okay.”
The governor of the Central Bank of Kenya's response to growing concerns regarding the availability of dollars in the market... pic.twitter.com/lJT2Ct41iH
On Monday, the Kenya Association of Manufacturers (KAM) had called on the CBK to “propose and implement policy actions” to ensure sufficient dollars in the market to meet demand in “a timely manner”.
KAM chairman Mucai Kunyiha said the mismatch between dollar demand and supply has persisted for months and that manufacturers are buying dollars costlier.
“This situation, compounded with the global challenges we are all facing, calls on the central bank and the Monetary Policy Committee to propose and implement policy actions that will return the market to predictability and, crucially, to supplies of currency as and when needed in order to restore confidence in the market,” Mr Kunyiha said on Monday.
But, while the CBK chief admitted that a spike in dollar demand had hit the market, he said it has since normalised.
“What’s clear is that …two months ago, there was significant, unusual demand [for dollars] maybe because of the dividend that were being paid out. That I think we all understood. But that whole season has ended and money has been transferred,” Dr Njoroge said. “It’s a $2 billion per month market and that is significant. If you have an actor coming in looking for $1 million, $10 million or even $100 million and claims that it (market) is dysfunctional, then kazi kwako (it’s your work to find out why).”
In April, KAM said banks had imposed caps on dollar purchases, making it difficult to obtain adequate forex to meet supplier obligations and injuring the ability to negotiate favourable prices in spot markets.
Two industrialists also told Business Daily at the time, that they had been forced to seek dollars in advance as the persistent shortage threatened to put a strain on supplier relations.
“It’s interesting that some of the people that are writing to us don’t even have positions [and] they are not in the market. They are traders,” Dr Njoroge said.
He added: “If you go to the market and deal with the specific banks according to the rules of the market, [then] that means the banks, yourselves and indeed the dealers are aligned about how the markets operate. For you, as a customer, you don’t need to know the rules. Just go to the banks and present your information [on] what you are making the payments for, etcetera.”
The exchange rate has long been a sensitive issue, with most players preferring silence for fear of reprisals from the central bank.
The central bank has in the past rebuked Stanbic Bank Kenya after a research note issued by its parent, South Africa’s Standard Bank, said a parallel exchange rate was emerging in Kenya.
This forced Stanbic Bank Kenya to issue a public statement distancing itself from the research note. “The contents of the report do not reflect the position of Stanbic Bank Kenya Limited,” Stanbic said after the research note was published by the Business Daily.
KAM has listed increased global prices of iron and steel, fertiliser and crude palm oil as some of the top imports whose cost has significantly gone up and thus requiring more dollars to purchase.
For example, the lobby says the price of a metric tonne of crude palm oil — used in the manufacture of cooking oil, soaps and cosmetics with glycerin— has nearly tripled to $1,980 (Sh231,283) in March 2022 from an average of $700 (Sh81,767) before the pandemic hit in March 2020.
“Of course, there has been other pressures from increase in price of oil and other products. And that is coming through, but the point is that can very well be taken care of by the market,” Dr Njoroge said.
Kenya’s foreign exchange reserves — which are largely tapped for debt payments and essential government imports such as medicines— last Thursday stood at $8.177 billion [about Sh955 billion], or the equivalent of 4.86 months of import cover. These were the lowest forex reserve levels since $7.840 billion [Sh915 billion], or 4.66 months of import cover, since March 31.
The official forex reserves, as published by the CBK, remain above Kenya’s statutory requirement of four months import cover and 4.5 months cover for the seven-nation East African Community bloc.
