Treasury forex reserves fall to lowest level since March

Kenya’s official foreign exchange reserves fell to the lowest level since March as the Central Bank of Kenya (CBK) fights to maintain them above five months of import cover.

The reserves fell by Sh7.6 billion ($74 million) in the week to December 6 to stand at Sh816 billion ($7.965 billion), equivalent to 5.27 months of import cover. This is the lowest amount since March 8 when it stood at Sh733 billion ($7.155 billion).

Some analysts suggested the CBK was concerned about the value of the shilling and so went about removing the local currency from the market through repurchasing agreements (repos), though the market players fell short of stating whether the monetary authority also used the forex reserves to buy the local currency.

The CBK uses the reserves to intervene in the forex market, repay foreign currency denominated debt or pay for government-related foreign purchases.

The reserves have been high since the borrowing of Sh200 billion ($2 billion) through a Eurobond early this year. The reserves jumped sharply to Sh905 billion or $8.831 billion, covering nearly six months of imports, as at March 15 and have remained elevated since.

The latest reserves are more than one month lower than at the highest level this year of 6.36 months of imports achieved on April 26.

The CBK normally does not disclose its purchases or sales from the market but has lately been put under pressure from the International Monetary Fund (IMF) to begin making public disclosure of its activities with regard to foreign exchange.

The IMF’s position was that the shilling’s value is only partly determined by market forces and could be weaker if it was fully left to such forces.

The World Bank has also stated in the past that the currency is overvalued and not fully subject to market forces.