CBK dollar reserves rebound after breaching limit

Central Bank of Kenya (CBK) official foreign exchange reserves have risen back above the prescribed lower limit of an equivalent of four months' import cover.

New data from the CBK shows the largely dollar-denominated cover rose by Ksh.56.9 billion ($462 million) last week to an equivalent 4.22 months import cover.

The reserves now stand at Ksh.928.6 billion ($7.537 billion) from Ksh.871.6 billion ($7.075 billion) previously.

The jump in the official reserves has coincided with the IMF board approval of a Ksh.55 billion loan to Kenya last week which represents the fourth disbursement from a 38-month program between the multi-lateral lender and Kenya.

CBK statutory requirements require the reserve bank to endeavour to keep foreign currency reserves equivalent to at least four months of the country’s import demand.

The reserves have nevertheless come under increased pressure this year largely from a spike in foreign debt payments after an unprecedented rise in interest rates globally.

At the same time, the CBK has deployed the foreign currency reserves to defend the local unit by selling dollars from the vault to minimize volatility resulting from the increased demand for the green buck by importers and merchant traders.

Nevertheless, the official reserves still stand off the East African Community (EAC) convergence criteria which require regional Central Banks to maintain reserves at a minimum 4.5 months' import cover.

CBK official reserves fell below the four months' import cover in late November for the first time since 2015 before the recent rebound.

According to the IMF, Kenya has revised down its foreign reserves targets on the back of tighter global financing conditions which has seen it miss out on planned external financing severally over the past year.

“FX (Forex) reserves during the program have been revised downward relative to 3rd review projections on Ksh.221.8 billion ($1.8 billion) shortfall in external public commercial and project borrowing in FY 2021/22, further cuts in foreign-financed projects of close to Ksh.123.1 billion ($1 billion) as part of the tighter fiscal stance in FY 2022/23, and revisions in the outlook for net private capital flows reflecting expectations of tight global financial conditions persisting in 2023,” the IMF said in a report on Kenya last week.

“Materialization of upside potential on external fiscal financing would support a higher reserves level than in the current baseline.”

[$1=Ksh.123.20]