Wealthy individuals and big companies stepped up their stockpile of dollars in bank accounts to a record level of Sh642.15 billion in March amid the global spread of Covid-19.
Central Bank of Kenya (CBK) data shows that foreign currency bank deposits held by Kenyans jumped by Sh16.1 billion in March from Sh625.9 billion.
This is an indication that the wealthy are protecting their value and hedging rather than seeking new areas in which to invest their fortunes.
CBK says that bankers and firms had informed it via a poll that investors are hoarding dollars for speculation purposes in the wake of forecasts showing that the shilling would remain weak against the US currency.
Analysts are of the view that the rush to buy dollars is part of a global trend in response to the rapid spread of the coronavirus, which has sent investors to the safety of the greenback.
“The uncertainty caused by the diseases made high net-worth individuals hold the dollar. In January, we saw there was a shortage of the dollar in the light of flight to safety as investors moved away from equities,” said Edwin Chui, head of research at Dyer & Blair Investment Bank.
He noted that by March exports that bring in forex had reduced. “Again, the memo from the Central Bank of Kenya indicating that they would be buying a certain amount of dollars through June may have led to hoarding of dollars,” he said. Mr Chui, however, said the cash from the International Monetary Fund and the World Bank would likely to limit further uncertainty and depreciation of the Kenya shilling unless there was an escalation of the crisis that would limit inflows from exports, tourism and remittances, especially in the second half of the calendar year.
The regulator quoted the shilling at Sh107 against the dollar Thursday compared to an average of Sh101.87 in January and February.
A reduced inflow of hard currencies after the coronavirus outbreak has hurt the shilling due to reduced inflows from farm exports and tourism. A slowdown in business activities and the uncertain future caused by the virus has forced many companies and rich investors to hold onto cash, leading to a pileup of cash in bank accounts.
The dollar has become the currency of choice for worried investors because the US economy is seen as the most sheltered should the virus damage the global economy.