Kenya's foreign exchange reserves swell to 6.24 bln USD
17 March 2014, 08:31
Nairobi - Kenya's foreign exchange reserves have surged to 6.24 billion U.S. dollars enabling the shilling to remain stable against international currencies.
The reserves, measured as months of import cover, have been on steady rise since November last year, where they had dropped to 5.82 billion dollars, according to a Central Bank of Kenya (CBK) report received on Sunday.
The 6.24 billion dollars foreign exchange reserves are equivalent to 4.35 months of imports cover. East African nation's minimum import cover is set at four months.In November when the reserves stood at 5.82 billion dollars, the import cover was placed at 4.08.
Since the beginning of January, the foreign exchange reserves have averaged 4.3 months of import cover, hitting the peak in the first week of March at 6.25 billion dollars, an equivalent of 4.36 months over on imports.
The rise in the import cover is an indication of success in CBK' s efforts to accumulate foreign deposits to cushion the Shilling from the volatility of foreign currencies.
Decline in the reserves below the set four months of import cover means that the apex bank will not effectively intervene in the forex market in cases when the Shilling is under threat due to speculative trading.
On the last day of trading last week, according to CBK, the Shilling recorded mixed performance against world and regional currencies.
"The Shilling weakened marginally against the U. S. dollar (86. 5), the Sterling Pound (144.6) and the euro (118.8) and strengthened against the Japanese yen (84)," noted CBK in the analysis.
In the East African region, the Kenya shilling weakened against the Uganda shilling (29.1) and the Burundi franc (18) and strengthened against the Tanzania shilling (18). Against the Rwanda franc, the Kenya Shilling traded at an average of 8 as in the previous week.
Kenya's foreign exchange reserves are held by the CBK, commercial banks and non-banking financial institutions (NBFI). CBK holds the largest reserves, followed by commercial banks and the NBFIs.
According to CBK, the reserves are in gold, various foreign currencies, securities like treasury bills and bonds, corporate bonds and equities denominated in international cash.
Analysts note that East African nation's foreign exchange reserves stood at between 853 million dollars and 3.06 billion dollars from 1995 until last year when they recorded tremendous rise.
The significant rise is attributed to an International Monetary Fund (IMF) loan of 111 million dollars offered to Kenya last November as part of a 760 million dollars aid package.
The Kenya government agreed with the IMF before the disbursement of the loan to accumulate foreign exchange reserves to cushion the Shilling from regular fluctuations.
CBK has of late intensified the mopping up of the local unit from the forex market and the selling of international currencies to banks to stabilize the currency.
Currently, Kenya is importing a lot more than it is exporting, which results into a high import bill. The trend has affected the county's currency and ensured that it maintains a weak forex reserves position.
Last year, East African nation's domestic exports, according to Kenya National Bureau of Statistics, totalled 5.3 billion dollars, against imports, which stood at 16.4 billion dollars.
The huge imbalance was blamed on drop of prices of Kenya's key exports that include horticulture, coffee and tea, which led to overall decline in exports.
Prices and quantity of coffee and tea exported went down on the international market for the better part of last year following political turmoil in crucial markets like Egypt.
Kenya's horticulture exports in 2013 stood 981 million dollars, down from 1.05 billion dollars in 2012.
The low exports have affected foreign exchange reserves. High foreign reserves enable importers to have sufficient international currency to pay for imports.