Kenya’s foreign reserves have shrunk by almost Sh50 billion since September to $8.03 billion, pushing down the country’s import cover and pilling pressure on the struggling shilling.
Central Bank’s Weekly Bulletin released yesterday shows that Kenya has now $8.03 billion in its reserves worth 5.3 months of import cover, down from $8.50 billion or 5.6 month import cover in September when the bimonthly Monetary Policy Committee (MPC) last met.
Depreciating forex cover means that the shilling is highly susceptible to volatility, high import cost, forcing importers to pass the increased bill to consumers by hiking commodity prices.
The dwindling forex cover perhaps explains why the shilling has been losing ground against the dollar in recent weeks, touching a ten month low of Sh103.17 mid this month.
Global ratings firm Fitch Solution in its study dubbed Africa Monitor- East and Central Africa released early this month predicted that the shilling will close the year at 103.50 as demand for dollars by importers spikes during this festive season.
Yesterday morning, the shilling slacked Sh0.05 to settle at Sh102.40 against the greenback down from Sh102.35 Friday. The Sh50 billion drop in forex reserves is likely to be the main taking point in today’s MPC meeting as it fight’s IMF’s assertion that it has been propping up the shilling, hence overvalued.
In a report released last month following a review on Kenya’s economic health, the international lender said the shilling may be overvalued by up to 17.5 per cent adding that it risked being classified as “managed” rather than operating on the forces of demand and supply.
“Reflecting limited movement of the shilling relative to the US dollar, Monetary and Capital Markets Department (MCMD) 2018 report on exchange rate arrangement will reclassify Kenya’s Shilling from floating to other managed arrangement,” IMF said.
Kenya has since refuted IMF’s claim terming it as ‘suggestive’ and ill intended.
“As has been previously communicated, the CBK’s own calculations support the view that there is no fundamental misalignment reflected in our exchange rate, and reiterates that the Kenya shilling reflects the currency’s true, fundamental value,” said CBK.
Speaking to the Star on phone yesterday, Jibran Qureishi, regional East Africa economist at Stanbic Bank praised the shilling’s resilience in the market, stating that it’s strength will continue pegged on stable macroeconomics.
He hopes that the MPC will address panic on currency in relation to absence of the IMF precautionary fund that expired in September.