Foreign exchange reserves held by the Central Bank of Kenya (CBK) increased by a hefty S5 billion ($342 million) in just five days last week.
In the past five weeks alone, the CBK has raised the reserves by a total of Sh81 billion ($793 million). The reserves now stand at Sh704.3 billion (or $6.904 billion), up from Sh623.4 billion ($6.112 billion) as of October 1.
The increase in reserves amounts to an extra two weeks of import cover and came as the shilling strengthened to about 102 units to the dollar from a low of slightly above 106 units on September 8. The dollar has therefore become cheaper to obtain in the market, with one commercial bank trading it at 102.2040 units as at 2.30pm yesterday, slightly weaker than last Friday’s closing rate of 102.0322 to the greenback.
Market players could not confirm or deny if the CBK had bought in the market, but added that the dollar had become cheaper to buy and it was possible some donors had released some funds. Kenya is however yet to draw from the Sh65 billion precautionary facility already approved by the International Monetary Fund (IMF).
“The CBK seems to be in control. We have seen some stability and the shilling is now slightly above 102 to the dollar even though I can’t tell right away whether the regulator is in the market today or not,” said a forex trader in a commercial bank in an interview.
Last week’s S5 billion increase is the single largest this year, which has also seen the import cover rise after having fallen below the four minimum statutory requirement.
Intervene in market
The import cover stood at 3.94 months in mid-September which was around the time the shilling had depreciated most compared to the beginning of the year. At its lowest the shilling had lost 14 per cent of its value relative from the year’s start as the CBK used good amounts of it to intervene in the market.
With so much in reserves the shilling has recently strengthened to 101 units to the dollar, but has since the end of last week touched 102 units again. Analysts have concluded that the fall in the rate on government securities, a magnet for dollars, was partly responsible for the weakness.
“The Kenya shilling traded range-bound against the greenback amid declining yield on government short-term debt securities,” said ABC Bank in their currency update at the end of last week.
The rate on the 91-day Treasury bill fell by a significant 5.7 percentage points to 13.8 per cent as at the last auction. Similar developments occurred with regard to the 182- and 364-day government securities as the rates now stand at 16.5 and 17.1 per cent respectively having fallen by more than three percentage points in each case. The treasuries attracted Sh106 billion untaken cash.
At the launch of the IMF’s report on sub-Saharan economies last week, some participants expressed discomfort with the pace at which the risk-free rates were falling, pointing out that it could lead to a return of the crisis that saw the shilling lose value.
In his second press conference two weeks ago, the CBK governor Patrick Njoroge said that regulator wants to give the economy a soft landing by bringing interest rates down after months of rising.
SOURCE: BUSINESS DAILY