The government is considering reinstating the interbank foreign exchange market to iron out the US dollar shortage that has seen the shilling fall to the lowest levels in history.
Speaking while officiating the listing of Laptrust’s Income-Real Estate Investment Trust (i-REIT) at the Nairobi Securities Exchange on Wednesday, Ruto said the talks with CBK to reinstate the interbank foreign exchange market aimed at sorting the on-going global dollar shortage are at advanced stage.
Read: Kenya’s Credit Outlook Downgraded Amid Tight Liquidity Position
The president’s sentiments come a week after banking experts dismissed dollar shortage claims, saying most lenders are holding on to the currency after CBK instituted tough measures to control the interbank FX market.
The acute dollar shortage has seen importers cut on consignments, limiting product supply in the market, a move likely to see a spike in the already high inflation.
Economists have projected the March inflation rate to close in on the 10-percent mark. In February, the cost of living grew marginally to 9.2 per cent from 9.0 percent recorded in January.
Read:Dollar Scarcity Hurts Importers And Manufacturers
Kenya has grappled with a dollar crisis for at least eight months now pushing inflation above the government’s ceiling of 7.5 percent.
The country’s forex reserves have since fallen to 3.6 months of import cover, the lowest since 2013. This has also seen some large forex consumers like Kenya Power forced to seek a dollar-denominated loan worth Kshs. 6.0 billion to refinance two commercial debts.
The apex bank has, however, continued to insist that there is sufficient foreign currency in the country to meet demand, brushing off dollar shortage concerns by importers.
While the dollar crisis is not just in Kenya, the blockage of the interbank forex market has done more harm than protecting the market. Although CBK wanted to control speculative dollar pricing by banks, the parallel market is selling above 10 units of the official rate.
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The Government’s deal that was signed two weeks ago allowing oil imports on a credit basis for up to six months is expected to help ease the dollar demand given that oil imports constitute 28% of Kenya’s monthly import expenditure. However, more still needs to be done to further reduce the pressure on the currency, especially import substitution in other sectors.
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