9 July 2009
Nairobi — The Central Bank of Kenya has no plans to tap the market to raise its foreign exchange reserves to the equivalent of six months import cover, Governor Njuguna Ndung'u told Reuters.
If it decided to raise that amount of hard currency, it would rely on donor funds, not the market, he said.
Ndung'u was reacting to a local media report on Wednesday that the central bank intends to buy $2.2 billion from the open market by 2012.
"There is no plan to raise the forex to six months of import cover," he told Reuters late on Wednesday.
"But even if it were to happen, it would be leveraged from donor funds, not raising it from the market. You cannot raise $2.2 billion from our market the way it is now or two years to come. This is a lot of shillings to inject into the economy."
Ndung'u said the shilling has appreciated against the dollar despite the central bank's dollar-buying programme, started in May to beef up its reserves that have fallen below four months of import cover.
Some currency traders have questioned the central bank's policy, saying it risks keeping rates expensive for private sector buyers.
"So how then can the build up of forex be in any competition with the private sector when abundance is driving the exchange rate the other way," Ndung'u said.
"Scarcity and competition as suggested by (some) would have driven the exchange rate in the opposite direction."
The shilling firmed to an eight-week high of Sh75.75 against the dollar on July 3, the strongest since May 7. The unit hit its lowest point this year on March 18 when it was at Sh81.30.
Last month, Ndung'u told Reuters he expected the local unit to strengthen in the short term on improved exports.
Official useable foreign exchange reserves stood at $3.083 billion on July 2, providing import cover for 3.5 months based on the 36-month import average, or 3.09 months based on the current year's imports.
The Governor said the bank's Monetary Policy Committee (MPC) had suggested a change in the basket of reserve currencies to reflect import needs more closely.
"The MPC wants to go to trade-weighted cover that will increase the composition of different currencies in line with trade weights rather than the four months rule using the U.S. dollar."
The East African Community trade bloc that Kenya belongs to however suggests hard currency stocks equal to six months of imports for its five members, he said
The committee will meet on July 21-22 to review the economy and the benchmark Central Bank Rate.
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