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Kenya FX reserves can cushion shocks to shilling

26 May 2014, 11:41

Nairobi - Kenya central bank holds adequate foreign exchange reserves to cushion the shilling against temporary shocks that left the local currency trading at two-and-a-half year lows late last week, the bank's governor said on Monday.

Governor Njuguna Ndung'u blamed seasonal factors including the payment of corporate dividends to foreign shareholders for the volatility and said he expected the situation to "normalise".

Traders, however, attribute the currency's steady weakening during May in part to a spate of bombings in Nairobi and on the coast that has shaken market confidence. Tourists have left in their droves and travel agencies report cancellations following travel warnings by Britain and the United States.

"The current level of foreign exchange reserves ... are sufficient to provide adequate cushion against temporary shocks," Ndung'u said in a statement, adding a planned Eurobond issue would bolster reserves further.

The shilling has fallen 1.3 percent in May and is 2 percent weaker in the year-to-date. It traded at 87.85/88.05 at 0750 GMT. Market participants say steeper losses have been prevented by the central bank's stance of mopping up liquidity.

Proceeds from the debut Eurobond will significantly raise the level of foreign reserves with the exchange rate expected to come under pressure to appreciate in the coming months.

Kenya expects to issue its debut Eurobond before the current fiscal year ends by the end of June.

- Reuters


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