Kenya’s official forex reserves dipped by Sh39 billion ($355 million) in August, on the back of external loans interest payments and possible dollar sales into the market to stave off exchange rate volatility.
The reserves, held by the Central Bank of Kenya (CBK), dropped from $9.341 billion (Sh1.026 trillion) on July 29 to $8.986 billion (Sh987.8 billion) on August 26.
The forex reserves are now the equivalent of 5.49 months of import cover, down from 5.71 months at the end of July.
Kenya’s official forex reserves dipped by Sh39 billion ($355 million) in August, on the back of external loans interest payments and possible dollar sales into the market to stave off exchange rate volatility.
The reserves, held by the Central Bank of Kenya (CBK), dropped from $9.341 billion (Sh1.026 trillion) on July 29 to $8.986 billion (Sh987.8 billion) on August 26. The forex reserves are now the equivalent of 5.49 months of import cover, down from 5.71 months at the end of July.
During the month, the CBK was due to pay the latest semi-annual interest instalments on the $2 billion (Sh219.8 billion) Eurobond contracted on February 22, 2018 and a nine-year, $1.25 billion (Sh137.4 billion) syndicated loan that was taken up in February 2019.
The Eurobond was issued in two equal tranches of 10 years at an interest rate of 7.25 percent and 30 years at a rate of 8.25 percent.
Kenya therefore pays interest worth $155 million annually (Sh17.03 billion) on the bond, in two instalments of $77.5 million (Sh8.5 billion) every February and August.
The syndicated loan was taken up at a cost of the six-month Libor (currently at 0.15 percent) plus a 6.95 per cent margin, which translated to about $44.38 million (Sh4.88 billion) in half yearly interest to the lenders last month.
These external debt payments are made by CBK from the reserves on behalf of the government, as are others such as those for government supplies from external sources.
The regulator also sells dollars to the local forex market when it is warding off exchange rate volatility, although it does not normally disclose when it does so, or the amounts involved.
Similarly, the CBK can also make dollar purchases from local banks if the volatility is biased towards strengthening.
Since the end of July, the shilling has been under pressure against the dollar, and is currently exchanging at an average of 109.93 units to the greenback compared to a rate of 108.60 on July 30.
A rising import bill has been putting pressure on the currency, driven mainly by rising oil prices and the continuing recovery of the economy that has raised consumer and industrial (intermediate) goods imports.
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