LOCAL UNIT

Rising forex reserves buff up Kenya shilling

Kenya has been receiving a number of loans which have continued to ramp up it's forex exchange reserves

In Summary
  • An analysis by the Star shows that the Kenya shilling was last above the 108 mark on May 24 when it exchanged at 108.1382 to the dollar.
  • According to the latest CBK weekly bulletin, the Kenya Shilling remained stable against international and regional currencies during the week ending June 17.
A cashier at a local Forex count dollars and shillings on 22 July 2020. The shilling has dropped to a low against the dollar
A cashier at a local Forex count dollars and shillings on 22 July 2020. The shilling has dropped to a low against the dollar
Image: FREDRICK OMONDI

Kenya's forex reserves have kept the shilling steady helping it maintain an exchange rate of 107-108 over the past one month.

An analysis by the Star shows that the Kenya shilling was last above the 108 mark on May 24 when it exchanged at 108.14 to the dollar.

Kenya has lately received a number of loans which has raised up its forex exchange reserves.

In April, the reserves increased by Sh33.4 billion ($313 million) following the disbursement of the first tranche of an International Monetary Fund (IMF) loan facility to the government.

The Bretton Woods institution announced that it will be disbursing the next $410 million (Sh44.3 billion) before June 30 to help boost the public purse , further cushioning the shilling.

Addressing a post-Monetary Policy Committee press briefing, Central Bank of Kenya Governor Patrick Njoroge said the disbursements provide adequate cover and  buffer against short-term shocks in the foreign exchange market and cushion the shilling from volatilities

According to the latest CBK weekly bulletin, the Kenya Shilling remained stable against major international and regional currencies during the week ending June 17.

“It exchanged at Sh107.80 per US dollar on June 17, compared to Sh107.90 per US dollar on June 10,” said CBK.

In the week ended June 10, CBK also reported that the shilling was stable exchanging at Sh 107.90 per US dollar on June 10, compared to Sh107.73 per US dollar on June 3.

According to CBK, usable foreign exchange reserves remained adequate at $7,474 million (4.57 months of import cover) as at June 17.

“This meets the CBK’s statutory requirement to endeavour to maintain at least 4 months of import cover, and the EAC region’s convergence criteria of 4.5 months of import cover ,” the apex bank said.

In the week ended June 10, the foreign exchange reserves also remained adequate at $7,506 million.

According to investment and financial advisory firm, Sterling Capital , the Kenyan shilling is expected to trade slightly more strongly this week underpinned by positive market sentiment partly fuelled by the Eurobond sale.

Kenya on Thursday raised $1 billion (108 billion) debt in a new Eurobond that was oversubscribed by five fold.

The firm also notes that the shilling is expected to stabilise at its current levels for the remainder of the year despite pressure from higher crude import costs, backed by hard currency inflows from government’s external concessional loans and remittances.

Financial risk analyst  Mihr Thakar says the stability of the Kenya Shilling is based on future expectations, with steady inflow of foreign loans expected to supplement the current account.

Thakar adds that the shilling's relatively blunted deprecation of 7 per cent in 2020, amidst what could have been a worst case scenario for such a highly indebted economy, actually boosted confidence in the local unit.

He however notes that future risks for the unit lie in an oil price rally as revenge consumption kicks in and a rate driven comeback in the dollar index.

Improving diaspora remittances evidenced by a 43.8 per cent year-on-year increase to $299.3 million in April 2021, from $208.2 million recorded over the same period in 2020, is another key factor cushioning the shilling.

CBK data shows that remittance inflows increased to $315.8 million in May 2021, compared to $258.2 million in May 2020, representing a 22.3 percent increase , further boosting the country's forex reserves.