Capital Markets

Foreign reserves decline by Sh41.9bn on debt payments

cbjk

Central Bank of Kenya. FILE PHOTO | NMG

The country’s foreign exchange reserves dropped by $381 million (Sh41.9 billion) in July, with market watchers pointing at payments of the government’s external obligations.

Data from Central Bank of Kenya shows the reserves stood at $9.336 billion (Sh1.006 trillion), representing 5.66 months of import cover as at July 30, a drop from $9.717 billion (Sh1.047 trillion) as at July 2, which covered 5.84 months’ worth of imports.

The decline also came at a time when the shilling was under pressure against the dollar, raising the potential for volatility in the market that may have seen the CBK spend dollars to iron out.

Analysts said however that the regulator has mainly relied on mopping up excess liquidity in the exchange rate operations, hence pointing to external payments as another reason for the reserves decline.

“The drop wouldn't be wholly from supporting the shilling, as over the period CBK has mopped cumulative Sh495.2 billion through open market operations.

This (mop-up) amount dwarfs the roughly Sh40 billion dip in reserves; which we would like to attribute as external debt obligations settlement in July,” Genghis Capital head of research Churchill Ogutu said.