- This was the second month since July Kenyans living in the diaspora send monies back home without the tax cushion
- CBK downplayed the volatility ahead of its Monetary Policy Committee meeting today
Kenya's foreign exchange reserves shrank further last week on low diaspora remittance and efforts by Central Bank of Kenya to support the shilling.
According to CBK's weekly bulletin, forex reserves fell by Sh4.8 billion to $9,148 million (Sh948.28 billion) as August's diaspora remittances dropped by 4.5 per cent compared to July.
Amount of money sent by Kenyans in diaspora Remittances in August stood at $214 million compared to $224 million in July 2019, reflecting a decline of 4.5 per cent.
This also represents a further decline from $295 million (Sh30.3 billion) recorded in June, signaling the effect of tax amnesty.
This was the second month since July consecutively as Kenyans living in the diaspora send monies back home without the tax cushion. Any money repatriated into the country started attracting 10 per cent from July 1.
North America, Europe and the Rest of the World accounted for 52 per cent, 20 per cent and 28 percent, respectively, of the total remittances in August 2019.
“However, the 12-month cumulative inflows to August 2019 increased to $2,776 million from $2,550 million in the 12 months to August 2018, reflecting a growth of 8.9 per cent,” CBK added.
The shilling, on the other hand, closed the week at 103.91 compared to 103.78 per US dollar the previous week after hitting a five- year low Thursday morning due to excess liquidity in the local market.
A report by investment banking company and analysts, Renaissance Capital said the currency could lose ground this year to close at 105 against the dollar.
The fluctuations of the shilling may represent a coincidental effect from the decline in remittances which form the larger portion of the in the forex reserves and ongoing demonetisation of the Sh1000 notes.
The declining reserves could continue to expose the shilling to short term shocks in the foreign exchange market even as the CBK downplayed the volatility ahead of its Monetary Policy Committee meeting today.
“The shilling remained relatively stable against major international and regional currencies during the week ending September 19,” CBK's weekly bulletin stated.
The meeting will reveal the stance of monetary policy indicators against the increased uncertainties in the global economy including the escalating trade tensions between the U.S. and China, concern over the resolution of Brexit, and volatility in international oil prices which may result to increased instability in the global financial markets.
The environment has now been heightened by the oil attacks in Saudi Arabia which may lead to reduced global oil and gas production capacity, resulting in a surge in dollar demand in the country.
Meanwhile, the central bank rate is expected to be maintained at 9.00 per cent against the anchored inflation which softened to 5.0 per cent in August 2019 from 6.3 per cent in the previous month.
The parliament has also rejected the proposal by National Treasury to repeal the interest rate capping law saying it will subject Kenyans to expensive credit at the expense of commercial banks.