Kenyan foreign currency deposits rose to the highest level last October shortly after demonetisation came to an end and as remittances rose relative to the previous year.
Data from the Central Bank of Kenya (CBK) showed the deposits stood at Sh625.4 billion in October compared to Sh607.4 billion in September and Sh608.2 billion in August.
The central bank started the exercise in a bid to clear the old Sh1000 notes from the market and replace them with new ones.
The CBK also explained that the exercise was also intended to rid the country of dirty money as only those with cash whose origin could be explained deposited in banks.
Renaldo D’Souza, head of research at Sterling Investment Bank, said the weakening of the shilling in the four-month period to September 30 was probably caused by the rush to change the old currency to the greenback.
“In the run up to the demonetisation deadline of 30th September we saw a weakening of the shilling probably as a result of increased demand for the US dollar. This is also visible from the data on commercial bank deposits of foreign currency in the period under review. That is holders of the old notes could have converted the local currency for the liquid and easily available US dollar,” said Mr D’Souza.
The increase in deposits in commercial banks also came against the background of a five per cent increase in remittance inflows for the 12 months to November.
“The cumulative inflows [in remittances] in the 12-months to November 2019 increased to $2,790 million compared to $2,658 million in November 2018, reflecting a growth of 5.0 percent,” said the CBK. The overall 12-month increase happened despite a decline to $218.8 million in November 2019 compared to $224.3 million in October.
The earlier peak in foreign currency deposits was Sh620.5 billion reached in June, the month the demonetisation began.