MONEY MARKET

Low dollar demand from importers raises FX reserve by Sh760 million

In Summary
  • Low gasoline prices also  help boost forex reserves
  • The banking regulator did not give reasons for the rise.
CBK Headquarters
CBK Headquarters
Image: FILE

Low dollar demand by importers and a drop in global oil prices boosted Kenya’s forex reserve, rising by Sh760 million for the week ended Friday, experts have said.

According to the Central Bank of Kenya weekly bulletin, usable foreign exchange reserves stood at $8.12 billion, translating to a 4.93 months of import cover as at November 5, rising by $7 million after weeks of consistent plunge.

The banking regulator did not give reasons for the rise.

 

The country’s forex reserves have been on a downward trend since September, intensifying in October when it consistently dropped by at least Sh10 billion, eroding shillings value against the dollar.

Tuesday, the shilling traded at 109 against the greenback, marking a 6.9 per cent year on year drop.

Economic experts took to twitter to speculate the sudden rise in forex at the time Covid-19 is exerting pressure on the country’s major sources of foreign; especially tourism, horticultural exports and diaspora remittances.

In September, Kenyans living abroad sent home Sh28.1 billion, marking a third monthly drop after a high recorded in June. This was attributed to fresh Covid-19 restrictions especially in Europe as the second wave of the virus kicked in.

Data from the Central Bank of Kenya (CBK) shows remittance inflows in September stood at $260.7 million compared (Sh28.15 billion) compared to Sh29.7 billion sent in August and Sh29.9 billion in July.

According to money markets expert and financial adviser Benson Ndehi, the financial crunch due to Covid-19 has tamed the spending power of most locals, resulting into lower import demand.

"Low gasoline prices should help boost forex reserves. There's also less demand for imports,’’ Ndehi tweeted.

 

According to the latest economic survey by the Kenya National Bureau of Statistics (KNBS), the country’s top 10 import includes Machinery and computers $1.4 billion or (9.8 per cent) of total imports, electrical equipment $1.3 billion and vehicles $1.2 billion.

According to another expert, Dolly Ogutu, oil demand locally has dropped with low spending power as the adverse economic effects of Covid-19 hence low oil imports thus boosting forex reserves.

The slight growth in forex is, however, not likely to straighten the shilling, which continues to, slid against the dollar.

An economist Timothy Ouma says the shilling is likely to continue weakening, as there is no enough fiscal ammunition in store to support stability.

Another economic commentator @ColdTusker echoes his sentiments, saying that the drop is inevitable unless Treasury ceases fiscal indiscipline.

“Unless the fiscal indiscipline ceases, the slide is inevitable. I don’t have a timeframe though”, he says.

The country, which lost $1.5 billion  the precautionary facility from the International Monetory Fund (IMF) in 2018 has been struggling to keep the shilling afloat.

Last week, Business Daily reported that Kenya has requested for another loan from the global lender after receiving Sh79 billion in May.