Bank forex deposits rise Sh15 billion in January

Foreign currency deposits held in Kenyan banks rose by a further Sh15 billion in January to hit a new all time high of Sh756 billion, continuing a trend that has been caused partly by hedging of risk and the depreciation of the shilling against the dollar.

The data from the Central Bank of Kenya (CBK) shows that the deposits went up in each of the previous four months until January, with the biggest jump recorded between November and December at Sh27 billion.

Analysts opined that the rise in hard currency deposits has been caused partly by the need of wealthy Kenyans to hedge against economic risk by holding onto the dollar, which is seen as a safe haven currency.

They do so when anticipating rough economic tides, like now due to the effects of the coronavirus pandemic.

It also points to reduced investment, with companies slowing down their expenditure due to the uncertainty over the economy in the short term.

The stock of dollar holdings in bank accounts was also been helped by a lower import bill, while export revenue from agriculture and diaspora inflows remained resilient in the second half of last year.

This saw the current account—which measures the net of hard currency inflows of goods, services and investments versus external payments—decline to a deficit of 4.8 percent of gross domestic product (GDP) in the 12-months to December 2020, from 5.8 percent in December 2019.

Over the 12-month period, imports of goods declined by 12.5 percent compared to 2019, mainly reflecting lower shipment of oil products. Meanwhile exports grew by 3.3 percent in the year, mainly pushed by receipts from tea which rose by 10.1 percent.

Remittances have also defied earlier projections of a decline due to the pandemic, with the cumulative inflows in the 12 months to February 2021 hitting $3.16 billion (Sh347.1 billion) compared to $2.83 billion (Sh310.9 billion) in the 12 months to February 2020.