FOREX RESERVES

CBK to boost dollar reserves, wary of global recession

The top bank intends to buy $100 million (Sh10 billion) every month to June from commercial banks

In Summary
  • Yesterday, the shilling dropped sharply against the US dollar, falling to Sh102.23 by noon according to the Google currency converter from Sh101.06 Monday.
  • Kenya is largely an import economy whose survival depends on the US dollar.
Central bank of Kenya./FILE
Central bank of Kenya./FILE

Kenya is building up  its foreign exchange reserves to cushion the country from volatility in the global market due to the Coronavirus breakout.

In a circular, the Central Bank of Kenya announced it will progressively increase its foreign reserves above normal level to bolster its preparedness to deal with heightened global volatility and uncertainty.

''CBK sees an opportunity for such purchases given the development unfolding in the global markets and economy,'' the banking regulator said.

 

Yesterday, the shilling dropped sharply against the US dollar, falling to Sh102.23 by noon according to the Google currency converter from Sh101.06 Monday.

The level of drop was last witnessed in October. 

The top bank intends to buy $100 million (Sh10 billion) every month to June from commercial banks with the minimum purchase being $1 million (Sh100 million) to be transacted at prevailing rates.

''Those purchases will be conducted while ensuring that they do not introduce volatility and instability in the foreign exchange again,'' CBK director, financial markets department.

Last week, CBK's foreign exchange reserves fell Sh10 billion as the country paid interests on its Sh200 billion Eurobond it took in February 2018.

According to CBK's weekly bulletin, the reserves stood at $8.409 billion (Sh849.3 billion) on February 27, down from $8.508 billion (Sh589.3 billion) a week earlier.

Kenya is currently relying on its forex reserves to iron volatilities and manage inflation in absence of the International Monetary Fund's (IMF) precautionary facility which expired in September 2018.

 

A budding financial analyst Hudson Muli has welcomed CBK's move to stock dollars, saying it shield the country from pending global financial crisis which is being fired up by coronavirus outbreak, trade wars and climate change.

According to him, Kenya is largely an import economy whose survival depends on the US dollar.

''Ongoing global risks are likely to strain production, hence high demand. When the import costs goes up, the cost of living shoots to the roof as producers pass the cost to consumers. The dollar will soon be on high demand,'' Muli said.

The spread of coronavirus which has since claimed 3,000 lives and infected more than 88,000 people in 60 countries has brought panic in global market, with risk assets, including equities, hammered hard  as investors worried about the economic impact of the global spread of the virus.