The Central Bank of Kenya (CBK) official forex reserves shrunk by Sh7.78 billion ($75 million) last week to close at the lowest level since May even as the shilling held steady.
Latest weekly bulletin from CBK showed the reserves stood at $8.925 billion (Sh926 billion) equivalent to 5.8 months of import cover on Thursday last week, compared to $9 billion (Sh933 billion) a week before.
But the shilling was unbowed against major international and regional currencies, appreciating marginally to exchange at 103.71 units to US dollar on October 17 compared to 103.78 units on October 9.
The Central Bank of Kenya (CBK) official forex reserves shrunk by Sh7.78 billion ($75 million) last week to close at the lowest level since May even as the shilling held steady.
Latest weekly bulletin from CBK showed the reserves stood at $8.925 billion (Sh926 billion) equivalent to 5.8 months of import cover on Thursday last week, compared to $9 billion (Sh933 billion) a week before.
But the shilling was unbowed against major international and regional currencies, appreciating marginally to exchange at 103.71 units to US dollar on October 17 compared to 103.78 units on October 9.
“CBK withdrew liquidity from the market through its open market operations (OMO) which helped keep the shilling stable,” AIB Capital said in its weekly note.
Dollar reserves
The CBK does not disclose its participation in the money market either in selling or buying dollars, making it hard to ascertain the level of intervention (if any) whenever the shilling comes under pressure.
Dollar reserves were at their highest a week after May 23 when the total reserves jumped to $10.06 billion after Kenya raised Sh210 billion ($2.1 billion) from Eurobond III.
The current dollar reserves meet CBK’s statutory requirement of at least four months of import cover and the East African Community region’s convergence criteria of 4.5 months of import cover.
Wednesday Reuters reported the Kenyan shilling strengthened supported by inflows from offshore investors buying government bonds. Commercial banks in the morning quoted the shilling at 103.45/65 per dollar compared with 103.60/80 at Tuesday's close.
Last week the average interbank rate increased to 7.59 percent from previous week’s 7.11 percent, pointing to tightening liquidity. This came as the week T-bills remained undersubscribed, with subscription rate declining to 80.6 percent, from 98.3 percent recorded the previous week.
“The relatively tight liquidity is attributable to the cyclical liquidity tightness due to the start of the new cash reserve ratio cycle,” Cytonn Investment observed.
Debt repayment
CBK will have to deal with rising foreign debt obligations that will require more dollars, with the stock of public debt having jumped into Sh6 trillion mark in July.
Notably debt repayment took up Sh214.79 billion or 57.7 per cent of Sh372.33 billion tax collected in three months to September, 2019, according to Treasury data.
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Note: The results are not exact but very close to the actual.
