Kenya’s foreign currency reserves decline to Sh688 billion

By: IMMACULATE KARAMBU

The country’s foreign currency reserves have reduced marginally for two consecutive weeks, sending mixed signals to the market.

The latest weekly data from the Central Bank of Kenya shows that forex reserves stood at Sh688.5 billion ($6.75 billion), equivalent to 4.30 months of import cover as at the end of last week.

The official reserves were Sh693.6 billion ($6.80 billion), equivalent of 4.33 months of import cover during the previous week.

“Movements in the amount of reserves depends on the rate at which the Central Bank is selling dollars to the market in order to stabilise the local currency and also the amount of interest being paid on foreign currency dominated debt.

MACROECONOMIC SHOCKS

The danger lies where you do not have sufficient reserves to mitigate any macroeconomic shocks,” said Mr Eric Munywoki, an analyst at Sterling Capital.

It is recommended by law that the Central Bank holds foreign reserves equivalent of four months of import cover.

The amount, however, fell below the recommended levels during the second week of September to Sh642.6 billion ($6.3 billion) equivalent to 3.98 months of import cover, dealing a blow to efforts by the Central Bank to tame depreciation of the shilling against major world currencies.

INCREASED APPETITE

Analysts say the gradual build-up of foreign currency at the Central Bank in the recent weeks is attributable to increased appetite for government securities by foreign investors, which until recently attracted interest rates above 20 per cent.

Returns from investments in government securities have, however, declined sharply to as low as 10 per cent, leading to reduced bids for all classes of State papers.

According to the latest data from CBK, the shilling displayed mixed performance against other currencies, strengthening against all East Africa Community units but weakened by 0.01 per cent against the US dollar.

SOURCE: DAILY NATION