This archive report was first published on 17 July 2021.
Shilling Firms as Kenyans Withdraw Sh34 Billion from Dollar Accounts ¶
By end of May, foreign currency deposits had dropped to Sh745 billion from a high of Sh779.8 billion in March, a signal of growing confidence in the shilling.
According to the Central Bank of Kenya (CBK), wealthy individuals and businesses had earlier converted most of their wealth into dollars to hedge against the weakening of the shilling, spooked by a tough business environment with a volatile exchange rate.
However, between April and May, foreign currency deposits in Kenyan banks reduced by Sh17.3 billion, data from CBK shows.
Experts attribute the reduction in foreign currency deposits to expectations of external debt financing inflows, which were cemented by the initial disbursement of IMF funds in April.
Having adequate reserves is good for the Shilling, as it means the local currency is not under pressure where there is so much of it is chasing fewer hard currencies.
Kenya's foreign exchange reserves received a major boost after the International Monetary Fund (IMF) and the World Bank disbursed some loans to Kenya, and the country issued a $1 billion (Sh108 billion) Eurobond, which increased the country's official reserves of foreign currency to $9,590 million (Sh1.34 trillion) by July 8.
“They would ideally reduce their holdings of shillings to dollars expecting the dollar to appreciate because during this time hard currencies tend to gain,” said Sarah Wanga, head of research at AIB Capital.
