Currencies

CBK forex reserves fall to 7-month low

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The Central Bank of Kenya building in Nairobi. FILE PHOTO | NMG

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Summary

  • With several debt repayment obligations coming up in the coming months, the reserves could come under deeper strain.
  • The forex reserves have in the past few months been enhanced considerably by inflows from international financing institutions such as the World Bank, International Monetary Fund and Africa Development Bank, which have lent the country billions of shillings in Covid-related support.

Official foreign exchange reserves held at the Central Bank of Kenya (CBK) dropped to a seven-month low of Sh867.72 billion in the week to November 19, new data shows, raising the risks of short-term shocks on the economy.

Latest CBK data shows that the reserves fell from dropped from $8,142 million (891.11 billion) recorded as at November 12 to $7,928 million (Sh867.72 billion), representing 4.87 months of import cover as at last week.

This is the lowest amount of reserves held since May 7 when funds were recorded at $7,809 million or 4.7 months of import cover.

Despite the big drop in November, the reserves still surpass the required statutory minimum of supporting at least four months of import cover.

“The usable foreign exchange reserves remained adequate at $7,928 million (4.87 months of import cover) as of November 19. This meets the CBK’s statutory requirement to endeavour to maintain at least four months of import cover, and the EAC (East African Community) region’s convergence criteria of 4.5 months of import cover,” said CBK.

The Central Bank uses the reserves, mainly earned from remittances inflows, foreign debt dollar purchases from the Treasury, tourism and export earnings to service foreign debt, support the shilling and facilitate payment of both private sector and government’s imports in the market in foreign currencies.

The CBK does not disclose its operations in the foreign exchange market, but has normally come in to sell dollars when the shilling is deemed to be depreciating too fast (volatility) against the dollar, or otherwise bought forex if the shilling gains too quickly.

The shilling is currently trading at an average of 109.45 units to the dollar, from 107.71 per unit on July 30.

With several debt repayment obligations coming up in the coming months, the reserves could come under deeper strain. Data by the National Exchequer shows cumulative debt service costs totalled Sh246.29 in the four months to October.

The forex reserves have in the past few months been enhanced considerably by inflows from international financing institutions such as the World Bank, International Monetary Fund and Africa Development Bank, which have lent the country billions of shillings in Covid-related support.

Kenya has also recorded a gradual rise in the export earnings on an improved economy. The Kenya National Bureau of Statistics data shows export receipts grew six per cent to Sh479.7 billion in the nine months to September, despite Covid-19 woes.