The official forex reserves held at the Central Bank of Kenya (CBK) have for the first time in four weeks dropped below six months of import cover, with a further drop likely next week when the country pays interest on the 2018 Eurobond.
Latest reserves data shows that CBK’s reserves stood at $9.405 billion (Sh972.5 billion) on Thursday, equivalent to 5.98 months of import cover.
This was a fall of $85 million (Sh8.79 billion) during the week, having previously stood at $9.49 billion (Sh981.3 billion) that represented 6.04 months of cover.
“The CBK usable foreign exchange reserves remained strong at USD 9,405 million (5.98 months of import cover) as at August 8. This meets the CBK’s statutory requirement to endeavour to maintain at least 4 months of import cover and the EAC region’s convergence criteria of 4.5 months of import cover,” said CBK in the weekly bulletin.
The recent slide in the shilling’s exchange rate to the dollar to the 104.20 level—a four-year low—put pressure on CBK to sell some of its hard currency to the market to stave off volatility, traders said. On Friday, the shilling closed trading at an average of 103.37 to the greenback. The easing of the depreciating trend has come at a time when official forex reserves have fallen significantly, pointing to possible CBK intervention in the market.
The regulator does not disclose when it intervenes in the market either by buying or selling dollars, and the amounts involved. Tracking dollar sales of purchases is made more difficult by the fact that as the government’s fiscal agent, CBK also handles from the reserves kitty outward payments such as interest on external debt, and external government purchases.
In the last one month, however, the reserves’ fall by a steep $360 million (Sh37.2 billion) from $9,765 billion has coincided with a fairly rapid shilling depreciation that would normally call for CBK intervention.
The third interest payment on the February 2018 $2 billion Eurobond is also due on August 22, with the government expected to pay a total of $77.5 million in the six-month payment to investors.
Treasury sold the dual tranche bond ($1 billion per tranche) on February 22, 2018, at interest rates of 7.25 percent for a 12-year paper and 8.25 percent for a 30-year paper.