Shilling drops further amid falling forex reserve
MARKET: The shilling lost against the dollar last week after the Central Bank foreign exchange reserves dropped below the statutory requirement of four months of import cover.
It is currently trading at Sh122.7 against the US dollar according to the central bank's official data but market data shows the currency trading at nearly Sh130 to one dollar.
The local currency has been trading at Sh121 for over two months but a strong dollar has seen the currency slide further. “The Kenya Shilling remained stable against major international and regional currencies during the week ending December 8. It exchanged at Sh122.74 per US dollar on December 8, compared to Sh122.50 per US dollar in December,” Central Bank of Kenya (CBK)said in its weekly bulletin.
The Central Bank of Kenya reserves also dropped to less that the statutory requirement of four months of import cover and lower than the East African community requirement of 4.5 months of import cover.
“The usable foreign exchange reserves remained adequate at $7,103 million (3.98 months of import cover) as of December 8. This meets the CBK’s statutory requirement to endeavour to maintain at least 4 months of import cover,” the regulator said. In the fiscal year that ended in June, Kenya’s external debt servicing costs increased by Sh5.4 billion, highlighting the effect of the country’s currency problems on its loan repayment commitments.
Margaret Nyakang’o, the controller of the budget, gave the extra payment her approval due to currency changes.
Commercial lenders
In the year leading up to June, the shilling lost around 9.25 per cent of its value versus the dollar, falling to Sh117.83, which put pressure on the Treasury to raise more money to pay off growing foreign debt.
The central bank’s action to try and limit the shilling’s depreciation versus the dollar and repayments to bilateral and commercial lenders have both contributed to the decline in Kenya’s foreign exchange reserves.
Companies with foreign obligations such as imports and debt services have been struggling to find dollars in the local market. Commercial banks have been the main beneficiaries of the market turmoil as they quote high spreads.
Top retail banks have profited from the dearth of hard currency, bringing in an additional Sh25 billion ($204.91 million). This was also ascribed to the erratic foreign exchange market, investments in government securities and the contractionary monetary policies pursued by central banks to contain the skyrocketing inflation.
