CBK foreign reserves down by Sh9bn on dollar revaluation
The Central Bank of Kenya. CBK has in the last one month used more than Sh9 billion ($100 million) of its foreign currency reserves. FILE PHOTO |
What you need to know:
Decrease in reserves partly attributed to effect of revaluation and net transactions with the government.
Reserves help cushion the economy against foreseen or unforeseen forex demand.
Kenya’s trade deficit has been widening creating concerns of potential pressure on the local currency. A big trade deficit means increased demand for dollars by importers to settle transactions, which weakens the shilling.
Central Bank of Kenya has in the last one month used more than Sh9 billion ($100 million) of its foreign currency reserves, partly attributed to a revaluation following strengthening of the greenback.
Transactions with the government have also contributed to the usage, CBK said, ruling out interventions to prop up the local unit.
The national reserves now stand at Sh626.1 billion ($7.03 billion) compared to Sh635.7 billion ($7.03 billion) in mid-October.
“The decrease in reserves over the one month period was partly due to the effect of revaluation and partly due to net transactions with the government,” said CBK in a response to the Business Daily.
Foreign currency dealers confirmed the regulator had not used the money to support the shilling.
“Central Bank has not been in the market recently – since early October – so they must have paid for projects or interest,” said head of trading at I&M Bank Mehran Sheikh.
The shilling has held steady at Sh89 to the dollar for the last month, opening at a mean of Sh89.82 Tuesday compared to an average of Sh89.88 on Monday.
Recent marginal weakening of the shilling against the dollar was attributed to gains by the US currency globally.
These gains have also resulted in a drop in the foreign reserves, which are held in dollars and other hard currencies. The reserves help cushion the economy against foreseen or unforeseen forex demand.
Dealers have pointed to inflows from proceeds of the infrastructure bond issued last month as supporting the shilling in the absence of market interventions from CBK. The Treasury floated a Sh15 billion 12-year infrastructure bond in October with a fixed return of 11 per cent.
Drop in international crude oil prices is also expected to favour the performance of the shilling as it eases the imports bill. Crude oil constitutes a fifth of Kenya’s monthly imports. The prices are currently at a one-year low.
Kenya’s trade deficit has been widening creating concerns of potential pressure on the local currency.
In the nine months to September the gap between the country’s imports and exports stood at Sh792.2 billion compared to Sh661 billion at a similar period last year.
A big trade deficit means increased demand for dollars by importers to settle transactions, which weakens the shilling.
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