Official forex reserves down to 19-week low

Official foreign exchange reserves fell to a 19-week low a week ago, providing an increasingly weaker cushion for the shilling.

According to data from the Central Bank of Kenya (CBK), the reserves stood at $8.935 billion (Sh927.3 billion) as of October 3, having fallen by $50 million (Sh5.2 billion) in one week.

The dip was a continuation of the previous week’s fall when the reserves had hit below $9 billion (Sh934 billion) for the first time since the conclusion of the third Eurobond that brought in $2.1 billion (Sh217.9 billion) and immediately raised the forex pile to a historic high.

Despite the continuous fall the CBK maintained that the reserves were adequate relative to the legal requirement of four months of import cover.

In line with its characteristic stance, the monetary authority, however, did not say how the forex had been used.

The CBK normally spends the dollars and other hard currencies in the local market by purchasing the shillings or shoring up commercial bank positions or as part of mop-up of excess liquidity.

It also spends the foreign money to repay forex-denominated debt, which has been rising rapidly in recent years.

“The CBK usable foreign exchange reserves remained adequate at $8.935 billion (5.58 months of import cover) as at October 3.

This meets the CBK’s statutory requirement to endeavour to maintain at least four months of import cover, and the EAC region’s convergence criteria of 4.5 months of import cover,” said the CBK.

The monetary authority has been under pressure to keep the local currency stable, prompting it to mop up billions of shillings from the commercial banks.

Recently it offered as much as 8.98 per cent – close to the maximum of nine per cent which is the Central Bank Rate – through a term auction deposit.