This archive report was first published on 3 August 2019.
On August 3, 2019, the Central Bank of Kenya took decisive action to stabilize the shilling, pumping out an estimated Ksh. 75 billion via repurchasing agreements (repos) across four sessions.
The significant mop-up saw the shilling reverse its recent flat run against the U.S. dollar, ending on the right side of the four-year low Ksh. 104 mark.
The Kenyan shilling touched a near two-month high of Ksh. 103.23 at Thursday's close before settling at Ksh. 103.65 at the end of the week.
Central Bank's open market operations provided respite to the weighty liquidity experienced in recent weeks, leading to a hold of the inter-bank lending rate and a reduction in government paper yields.
While the interbank rate eased slightly to 2.51 percent, the value of deals traded reduced to Ksh. 8.92 billion from Ksh. 10 billion, despite a rise in banks' excess cash reserves to Ksh. 6.32 billion.
Yields on treasury bills for 91 and 182 days were eased 4.5 and 11.1 points, respectively, as the government securities market saw a rise in the subscription rate of bills to 137.5 percent.
Further, the shilling's recovery would find impetus in the dispensation of further foreign currency from the usable foreign exchange basket, with the account falling to Ksh. 938.2 billion ($9.5 billion) to bring the country's effective import cover to a flat six-months.
According to Genghis Capital Research Analyst Churchill Ogutu, open market operations are ideal to correct the imbalance of liquidity in the market, which influences currency exchange rates through the supply-demand mechanism.
Meanwhile, the US Federal Reserve dropped interest rates for the first time since the end of the 2009 financial crisis by 0.25 points to hold off any further gains by the US dollar on other world currencies.
