Central Bank of Kenya taps $100m to reserves
Zachary Ochuodho @PeopleDailyKe
The value of the Kenyan shilling yesterday dropped by 0.88 per cent to 102.24 per dollar – the lowest level in three months – after Central Bank of Kenya (CBK) announced that it would buy the US dollar to boost foreign exchange reserves (Forex).
CBK said it wants to purchase up to $100 million which is equivalent to Sh10.44 billion worth of purchases between March to June 2020.
In a note sent to commercial banks’ chief executive officers, CBK director for Financial Market, William Nyagaka said the regulator would commence buying US dollars in order to progressively boost its Forex reserves above the normal levels.
When the business started commercial banks quoted the dollar at Sh102.24 – the lowest level witnessed since early December ,and down from Sh101.16 registered on Monday close.
Sterling Capital Ltd director John Kirimi said the sharp depreciation of the shilling against the dollar was a panic reaction from traders.
“The depreciation of the shilling was occasioned by traders who panicked after learning about the note from CBK to banks CEOs,” Kirimi said.
On Monday, the shilling depreciated against the greenback to trade at Sh101.16 per dollar in contrast to Sh100.98 to the dollar registered on Friday.
A depreciation of the shilling indicates a higher demand for the dollar and dollar-denominated assets.
According to statistics, CBK’s usable foreign exchange reserves remained adequate at $8,409 million -- which is equivalent to 5.11 months of import cover -- on Friday last week.
Kenya shilling has been one of the most stable currencies this year, but traders said the announcement by the central bank could signal increased demand for dollars, leading to volatility in the exchange rate.
In the message from CBK to CEOs of the commercial banks, Nyagaka noted that it would ensure its purchase of dollars does not cause volatility or instability in the market.
