CBK FX reserves tank by Ksh.50 billion in two months

The Central Bank of Kenya (CBK) official foreign exchange reserves have tanked by Ksh.50.48 billion ($454 million) in the last eight weeks.

This is as the reserve bank steps up its open market operations (OMOs) including the sale of dollars in the inter-bank market to counter the shilling’s recent slump.

The present pool of FX reserves ($9.175 billion) which mostly comprise of dollar reserves is the lowest since September 2 when the foreign currency cover stood at $8.883 billion.

The reserves peaked at $9.629 billion on September 9 after Kenya’s receipt of new $737.6 million special drawing rights (SDRs) from the International Monetary Fund (IMF) which was announced at the end of August.

The CBK action to sell dollars serves to increase the supply of the green buck in the system, countering the effects of an unmatched demand for the currency from players who largely cover import traders.

In spite of the lower reserves count, the FX cover remains adequate representing about 5.61 months of import cover.

This meets the CBK’s statutory requirement that endeavours to maintain at least four months of import cover and the East Africa Community (EAC) region’s convergence criteria of 4.5 months of import cover.

The reserves pool has been partly strengthened by recent loan financing from the IMF and the World Bank alongside improving diaspora remittances.

Over the last two months meanwhile, the Kenyan shilling has continued to edge downwards against the US dollar and recently  touched a low Ksh.111 mark again, its lowest level in about 10 months since mid-December.

The weakening of the shilling has been attributed to rising uncertainities in global trade, a widening current account deficit and increased dollar demand from import traders especially those importing oil whose price has soared following the re-opening of economies around the world.

The shilling was quoted at Ksh.111.26 against the US dollar in early trading on Monday.