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World Bank, IMF loans save shilling from further downfall

Strengthening shilling also likely to help the country ease inflation on lower import bills.

In Summary
  • The shilling traded at Sh106.12 per compared to Sh107.03 the previous week.
  • The strengthening of shilling inspired by international investors, easing risk levels on Kenya’s Eurobond.
MINTED: Kenya Shilling coins are scarce.Photo/Elkana Jacob
MINTED: Kenya Shilling coins are scarce.Photo/Elkana Jacob

Kenya’s forex reserves surged back to pre coronavirus levels, hitting Sh$9.26 billion (Sh981.3 billion) in the week ended Friday, June 5, fuelling shilling’s strength against the US dollar.

According to the weekly bulletin by Central Bank of Kenya (CBK), the local currency strengthened against major international and regional currencies during the week, exchanging at Sh106.12 per compared to Sh107.03 the previous week.

The usable foreign exchange reserves remained adequate at $9.26 billion (5.56 months of import cover) as of June 4 compared to $8.3 billion (Sh885 billion) reported the previous week, growing by almost Sh100 billion.

''This meets the CBK’s statutory requirement to endeavor to maintain at least 4 months of import cover, and the EAC region’s convergence criteria of 4.5 months of import cover,’’ CBK said.

The strengthening of shilling inspired by international investors, easing risk levels on Kenya’s Eurobond.

According to CBK’s data, yields on Kenya’s Eurobonds declined by an average of 21.4 basis points during the week under review, slightly shrining interests due.

The strengthening shilling is also likely to help the country ease inflation on lower import bills.

Kenya’s year-on-year inflation eased to 5.47 per cent in May compared to 5.62 per cent in April despite a 0.63 per cent increase in overall Consumer Price Index (CPI), which measures the percentage change in the price of a basket of goods and services consumed by households.

CBK governor Patrick Njoroge told journalists that overall, inflation is expected to remain within the target range of less than 7.5 per cent in the near term.

“This is supported by the improving food supply due to favourable weather conditions, lower international oil prices, the impact of the reduction of VAT, and muted demand pressures,” Njoroge said.

The sudden growth in Kenya’s forex reserve is an indication that recent loans from the World Bank, the International Monetary Fund (IMF), and African Development Bank (AfDB) have finally hit exchequer’s accounts.

Late last month, WB approved a $1 billion (Sh106 billion) loan to Kenya to support and safeguard the shilling against volatilities. This was a week after IMF gave Kenya $739 million (Sh79 billion) Rapid Credit Facility to help the country international cover the balance of payments shortfalls this year.

Kenya also received Sh22 billion from AfDB to support the government’s efforts to respond to the COVID-19 pandemic and mitigate the related economic, health, and social impacts.

The country's primary foreign exchange earner: diaspora remittance, horticultural exports, and tourism have been greatly hampered by the virus.