30 August 2017

Kenya: Why Foreign Currency Reserves Reduced By U.S.$800 Million

Photo: Premium Times

Kenya's foreign currency reserves progressively fell by over $800 million during the past three months, the period within which the general elections were held, and the Central Bank fought to stave off wild swings by the shilling.

Two weeks ago, CBK's forex reserves stood at $7.42 billion, equivalent to 4.93 months of import cover, compared with $8.23 billion, equivalent of 5.48 months' cover three months ago.

The forex reserves have been heading towards the minimum four-month import cover, stipulated in the law.

The shilling defied the volatility of the elections period to remain relatively stable at Ksh103.87 ($1) against the greenback a day before the election and dropped slightly to Ksh103.89 ($1) on election day.

It then hovered around the Ksh103.89 ($1) in the post-elections days that were characterised by tension and isolated incidents of violence.

In mid-July, the shilling touched a six-month low of Ksh104 ($1) due to dollar demand by oil companies, food importers and firms that were paying dividends to investors abroad. It was last near this level mid-January, when it touched Ksh104.20 ($1).

According to analysts, the shilling has been considerably resilient.

Seven out of the world's 10 worst performing currencies were those of African countries, including peer currencies, such as Ghana's cedi, Ethiopia's birr, Nigeria's naira and the Uganda shilling.

"The Kenya shilling exchange rate had mixed performance against major international and regional currencies during the week ending August 17, 2017," stated the CBK.

A week ago, the Kenya shilling strengthened against the Tanzania shilling and the Burundi franc, but weakened against the Uganda shilling and remained broadly stable against the Rwanda franc.

The Uganda shilling traded in a stable position, underpinned by some inflows from commodity exporters weighing against thin demand from manufacturers and other importers.

Commercial banks quoted the Ugandan shilling at 3,595/3,605, as appetite for dollars was broadly expected to remain marginal.

The Tanzanian shilling held steady against the dollar by subdued demand for the US currency from importers amid a slowdown in business activity.

Banks quoted the shilling at 2,234/2,244 to the dollar with traders saying the currency would remain stable due to lacklustre demand and supply of dollars.

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