- CBK on Friday quoted usable foreign reserves at $9.023 billion compared to $9.131 billion the previous week
- On Tuesday, the shilling touched an eight-month low of 103 units.It however gained to close the week at 102.29
Kenya’s foreign exchange reserves dropped by over Sh10 billion last week, an aspect financial experts have attributed to mopping up of the shilling which come under pressure early last week.
On Tuesday, the shilling touched an eight-month low of 103 units to the dollar on the back of high dollar demand partly driven by the high liquidity. It however gained to close the week at 102.29.
A weekly bulletin by Central Bank on Friday quoted usable foreign reserves at $9.023 billion (Sh920.3 billion) compared to $9.131billion (Sh931.3) the previous week, signaling a drop of Sh10.93 billion.
Even so, the monetary custodian said the available amount was way above both country’s and regional set minimum limits.
‘’Foreign exchange reserves remained strong (5.7 months of import cover), meeting the CBK’s statutory requirement to maintain at least four months of import cover and the EAC region’s convergence criteria of 4.5 months,’’ CBK said.
Kenya’s foreign reserves which hit a high of $10.06 billion (Sh1.06 trillion) the week ending May 30, have been dropping for the past five weeks as the country fight to stabilise the shilling due to excess supply of local currency in the market.
This, after CBK governor Patrick Njoroge unveiled new generation notes on June 1 in Narok and gave public up to October 1 to exchange old Sh1000 notes for new ones.
The planned demonitisation exercise has sparked high demand for the dollar. Pilling pressure on the local currency.
Regional East Africa economist at Stanbic Bank Jibran Qureishi said their is improved shilling liquidity in the market due to release of pending bills by the government including VAT refunds and debt maturity.
‘’Expect more defense from CBK in coming days due to excess supply of local currency. Government has been clearing pending bills in addition to larger domestic debt redemption. In July we have Sh153 billion in maturities of bills and bonds,’’ Qureishi wrote on twitter.
A monetary expert Mohamed Wehliye wonders how the government will meet its domestic debt target if CBK continues to use foreign reserves to defend the shilling.
‘’It will reach a point where Njoroge will pay better returns than Rotich and the later will not be able fund his budget from domestic sources. Defending shilling not sustainable,’’ Wehliye wrote.
His statement echoes that of Amana Capital chief investment officer Reginald Kadzutu who in May cautioned CBK against managing the shilling, terming an overpriced currency as a ticking economic bomb.
A report by his investment firm said the shilling is overvalued by 30 per cent. Last year,the international Monetary Fund (IMF) report said the shilling is overvalued at by over 17 per cent.
Kenya however refuted those claims, with CBK governor saying the local currency’s stability is supported by stable microeconomics fundamentals and that the value is of free float nature.