Shilling piles pressure on CBK reserves

Thursday, March 10th, 2022 02:16 | By
Central Bank of Kenya - loans PHOTO/Courtesy
Central Bank of Kenya. PHOTO/Courtesy

The Kenyan shilling weakened on Wednesday as demand for dollars from across various sectors of the economy including commodity traders and energy sector piled pressure on Central Bank of Kenya forex reserves.

“The shilling is trading at 114.05/25 today against the US dollar. We have seen demand coming from across various industries. The last one week has seen short supply and high demand for the dollar,” said treasury traders at Bank of Africa.

With oil prices on the rise, energy companies will need more Kenyan shillings to buy dollars for purchases of oil stocks.

Meanwhile food prices are also rising especially wheat, even as fertilizer costs escalate, meaning the country will need more dollars to cover for its imports.

“Usable foreign exchange reserves remained adequate at Sh900 billion ($7,913m) which is worth 4.84 months of import cover as at March 3. This meets the CBK’s statutory requirement to endeavor to maintain at least 4 months of import cover,” the Central Bank of Kenya (CBK) said in its weekly bulletin.

The reserves have been on a steady decline since last month. The usable foreign exchange reserves were at 4.97 months of import cover (Sh800bn)as at February 24.

The high costs of imports have been eroding CBK’s reserves, perhaps in a development that could force the banker of last resort to seek a stabilisation facility from the IMF.

Last month alone, the currency depreciated by 2.5 per cent making it the third worst performing in Africa, Bloomberg data shows.

Higher prices of goods

“February performance reversed January’s 2.1 per cent appreciation, hence resulting in a year to date performance of -0.45 per cent,” said Churchill Ogutu, head of research at ICEA.

This means that Kenyans paid more for goods and services and imports such as food, oil and factory inputs came at higher prices than before.

The Kenyan shilling could depreciate further as the US prepares to hike interest rates, unless the CBK also begins lifting rates.

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