This archive report was first published on 24 October 2019.
Thursday, October 24, 2019, marked a significant milestone for Kenya's economy as the Central Bank of Kenya (CBK) official forex reserves hit a 5-month low. The reserves shrunk by Sh7.78 billion ($75 million) last week to close at $8.925 billion (Sh926 billion), equivalent to 5.8 months of import cover.
According to the latest weekly bulletin from CBK, the reserves stood at $8.925 billion (Sh926 billion) on Thursday last week, compared to $9 billion (Sh933 billion) a week before. Despite the decline, the shilling held steady, appreciating marginally to exchange at 103.71 units to US dollar on October 17 compared to 103.78 units on October 9.
CBK's actions in the money market, including open market operations (OMO), helped keep the shilling stable, according to AIB Capital's weekly note. However, the CBK does not disclose its participation in the money market, making it difficult to ascertain the level of intervention whenever the shilling comes under pressure.
The current dollar reserves meet CBK's statutory requirement of at least four months of import cover and the East African Community region's convergence criteria of 4.5 months of import cover. The reserves were at their highest a week after May 23, when the total reserves jumped to $10.06 billion after Kenya raised Sh210 billion ($2.1 billion) from Eurobond III.
Wednesday, Reuters reported that the Kenyan shilling strengthened, supported by inflows from offshore investors buying government bonds. Commercial banks quoted the shilling at 103.45/65 per dollar compared with 103.60/80 at Tuesday's close.
CBK will have to deal with rising foreign debt obligations that will require more dollars, with the stock of public debt having jumped into Sh6 trillion mark in July. Notably, debt repayment took up Sh214.79 billion or 57.7 per cent of Sh372.33 billion tax collected in three months to September, 2019, according to Treasury data.
