A slight improvement in diaspora remittances did not boost the country's forex reserves which have dropped to a five-year low.
The weekly bulletin by the Central Bank of Kenya shows the usable foreign exchange reserves dropped to $7.29 billion (Sh881.3 billion) or 4.11 months of import cover as of October 13 compared to $7.32 billion Sh885 billion last week.
The last time the forex reserves stood at such a level was in October 2017, underpinning the pressure the Central Bank is facing in a bid to shore up its stock amid increased demand for dollars by importers.
''The usable foreign exchange reserves remained adequate at 4.2 months of import cover. This meets the CBK’s statutory requirement to endeavor to maintain at least four months of import cover,” CBK said.
The country is moving closer to breaching the national threshold of maintaining forex reserves to at least four months of import cover. It has already violated East Africa's threshold of 4.5 months of import cover.
Even so, the apex bank has maintained a brave face, insisting that the reserves in the store are adequate to meet demand from importers and corporates.
In May, while reacting to claims by traders that they were struggling to get dollars in the market, CBK governor Patrick Njoroge said the amount in the market was way bigger for the traders.
“The forex market generates and distributes something like $2 billion every month. So if you have somebody or a sector that is importing $90 million or $100 million, I think that’s nowhere near the $2 billion that we are putting out there,” the CBK boss said.
He added that traders should understand that they are small in that sense and sort of going to the market like everyone else.
Kenyans living abroad sent home $318 million (Sh38.4 billion) in September compared to $309.8 million (Sh35.8 billion) in the corresponding period last year, an increase of 2.6 per cent.
It was also an increase compared to $310.5 million (Sh37.4 billion) sent in August.
The cumulative inflows for the 12 months to September totaled $4 billion (Sh484 billion) compared to $3.5 billion (Sh423 billion) in the same period in 2021, an increase of 13.3 per cent.
The strong remittance inflows continue to support the current account and the foreign exchange market.
This year, the remittances coupled with rebounding exports have been critical in keeping Kenya’s current account deficit stable with the gap standing at 5.3 per cent of Gross Domestic Product (GDP) at the end of September according to CBK provisional data.
The US remains the largest source of remittances into Kenya, accounting for 59 per cent of money sent back home in the month under review.
According to CBK, the USA contributed $190 million during the month under review compared to $203 million similar month last year.
The high inflation in the US has limited the disposable amount relatives normally send to their kins back home.
The global economic powerhouse is witnessing the highest inflation in 40 years and it is expected to worsen in the coming months as the country tightens its credit.
Its inflation is currently at 8.5 per cent with both mortgage and rest prices rising to above six per cent, the highest since the great recession of 2008.
Last month, the Federal Reserve delivered another 75-basis-point interest rate hike and is likely to hold its policy rate steady for an extended period once it eventually peaks.
The Fed's policy rate is currently 3-3.25 per cent. By year-end, traders now expect the rate to reach 4.5-4.75 per cent, the highest since early 2008, before the worst of the global financial crisis.
The dwindling FX reserves also saw the shilling drop to an all-time low during the week.
According to the CBK Weekly Bulletin, the shilling dropped further against the greenback, exchanging at 120.94 on October 13, compared to 120.82 last week.
The shilling has been dropping against major international currencies for almost 18 months now, shedding seven per cent in value.
The greenback has been growing stronger, increasing 24 per cent in value in the past 12 months as Joe Biden's administration push up the base lending rate to clamp the rising cost of living.
