Capital Markets

Bond dollar inflows boost forex reserves by 8.4pc

CBK-sirima

Public Debt Management Office Director General Haron Sirima. FILE PHOTO | NMG

BDgeneric_logo

Summary

  • Massive dollar flows chasing the tax-free infrastructure bond whose sale closed last week helped push up Kenya’s official forex reserves by 8.4 percent to Sh1.06 trillion ($9.63 billion).
  • Infrastructure bonds tend to attract heavy bidding from foreigners, who see them as a good hedge against the volatile equities market.

Massive dollar flows chasing the tax-free infrastructure bond whose sale closed last week helped push up Kenya’s official forex reserves by 8.4 percent to Sh1.06 trillion ($9.63 billion).

Infrastructure bonds tend to attract heavy bidding from foreigners, who see them as a good hedge against the volatile equities market.

Kenya floated a Sh75 billion bond but raised a record Sh151.3 billion worth of bids, with the Central Bank of Kenya (CBK) taking up Sh106.75 billion.

“The increase in forex reserves is due to the infrastructure bond inflows,” said Harun Sirima, the Director-General of the Public Debt Management Office.

CBK data published on Friday shows that the reserves went up by Sh82 billion, clawing back recent erosion that was partly attributable to external debt repayments and possible market sales to stave off exchange rate volatility. In August, the reserves fell by Sh50.3 billion ($458 million).

The current levels of reserves can now cover 5.89 months of imports, which exceeds the CBK’s statutory requirement to endeavor to maintain at least four months of import cover, and the EAC’s convergence criteria of 4.5 months of import cover.

Kenya’s forex reserves have grown increasingly reliant on external debt receipts and diaspora remittances for growth.

It has, however, been cut back by oil and other import costs and debt repayments as well as Central Bank of Kenya measures to stabilise the currency against demand for dollars.

Earlier this year, the reserves got a boost from more than $2 billion worth of concessional loans from the World Bank and the International Monetary Fund (IMF), and also a $1 billion Eurobond issuance in June.

Analysts expect the inflows from the infrastructure bond to support the shilling—currently exchanging at 109.87 units to the dollar— this week, but pressure remains from rising demand from importers.

“We expect the Infrastructure bond inflows to support the shilling in the coming week. However, still expect the local currency to continue under pressure due to the increase in global oil prices, coupled with reduced dollar inflow from key export earning sectors such as agriculture and tourism,” said analysts at AIB-AXYS Africa, a city based investment bank.