Forex reserves on a downward as CBK sells dollars

What you need to know:

The foreign exchange reserves dipped to $7.31 billion (Sh758.05 billion) from $7.37 billion (Sh764.27 billion) a week earlier, the CBK said in an update on Wednesday.

The country’s dollar stock fell by $62 million (Sh6.43 billion) in the week ended last Thursday, underlining the battle by the Central Bank of Kenya to keep the shilling stable amid intensified buying by companies.

The foreign exchange reserves dipped to $7.31 billion (Sh758.05 billion) from $7.37 billion (Sh764.27 billion) a week earlier, the CBK said in an update on Wednesday.

The reserves have steadily dipped by a cumulative $234 million (Sh24.27 billion) in five weeks from September 14 and are now at a new low since the week ended March 16.

The CBK said in this week’s bulletin that renewed demand for the dollar by the corporates has put fresh pressure on the shilling.

“The performance of the Kenya shilling reflected increased corporate demand for foreign exchange during the review period,” CBK chief dealer said of last week’s slight weakening of the Kenyan unit against major international currencies.

Companies have been stock-piling the greenback due to elevated political uncertainty.

READ: Kenya shilling falls to lowest since mid-August on election jitters

Increased demand for the dollar raises its value, meaning traders have to part with more shillings to make a buy.

The CBK usually sells the accumulated dollars to iron out adverse volatility on the shilling besides selling them to importers.

The pressure on the shilling has increased this week pushing it closer to Sh104 exchange rate.

Analysts see persistent pressure on the shilling until a return to relative certainty in the political landscape, which slows down dollar inflows from new investments that build reserves.

“The proviso is that we can get a clean guillotine on the 26th, (today) otherwise we are at risk of asymmetric downside moves,” CEO of Rich Management, an investment advisory, Aly-Khan Satchu, said.

The reserves were at historic highs in late April through early May, hitting a record $8.31billion (Sh861.75 billion) in the week ended April 27, largely driven by increased foreign loan inflows.