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Currencies

Forex reserves tumble to Sh828bn as the shilling strengthens

Central Bank of Kenya
Central Bank of Kenya. FILE PHOTO | NMG 

Central bank dollar reserves continued on a downward trend to close April at $7.74 billion (Sh828.6 billion), down from $7.858 billion (Sh832.9 billion) reported a week earlier.

The forex reserves, which have now fallen to a more than two-year represent the lowest level since early March 2018 when the stock of dollars held by the Central Bank of Kenya (CBK) were $7.15 billion (Sh729.81 billion).

The reserves now only cover 4.66 months of import.

Since the start of the year they have fallen by a record $1 billion according to the weekly bulletin released on Friday.

According to the East Africa's convergence criteria countries should have at least 4.5 months of import cover meaning the CBK's import cover is fast approaching the threshold.

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The national statutory requirement is that the government's bank must endeavour to maintain at least four months import cover meaning the current level is still adequate.

The active involvement by the regulator to help stabilise the shilling seems to be paying off as the local currency strengthened trading at 106.1 against the dollar on Wednesday, the best performance in 14 days.

The local currency slumped to an all-time low trading of 107.29 against the dollar on April 30.

The depreciation has largely been blamed on the Covid-19 pandemic that has seen weaker currencies struggle against major global currencies as investors prefer holding wealth in more stable currencies.

"The shilling has remained under pressure since mid-March when the country reported its first case of Covid-19. Foreign investor outflows have increased and CBK has used its forex reserves in a bid to support the shilling." said AIB capital in a note.

Reduced dollar inflows from exports, remittance and tourism as result of the pandemic containment measures and tougher economic times have also taken a toll on the local currency.

“Analyses of the impact of the pandemic show a significant decline in exports mainly due to reduced demand in Kenya’s key export market destination,” said the CBK after the last policy meeting.

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