Kenya’s foreign exchange (forex) reserves have dipped below the crucial KES 1.019 trillion mark for the first time in five weeks, signaling a departure from the previous upward trajectory. This decline underscores a diminished capacity of the nation’s monetary authorities to fortify the shilling’s strength.
Recent figures released by the Central Bank of Kenya (CBK) reveal a 3.6% decrease in forex reserves, plummeting by KES 38 billion to KES 1.012 trillion as of last Thursday, down from the previous week’s KES 1.05 trillion, equivalent to 3.7 months of import cover.
The peak of the country’s foreign reserves was recorded on February 22nd, reaching their highest level in over five months. This upturn followed two concessional foreign loans, which contributed to the shilling’s resurgence against major currencies after nearly a year of decline.
The CBK’s target is to sustain forex reserves at a minimum of KES 1.07 trillion, equivalent to four months’ worth of imports, indicative of the nation’s enduring economic stability.
After lingering below the KES 1.019 trillion mark for nearly six months, reserves ascended to KES 1.022 trillion by January’s end, propelled by injections of funds from the International Monetary Fund (IMF) and the Trade and Development Bank (TDB).
The IMF disbursed KES 109 billion to Kenya on January 17th, followed by the TDB’s contribution of KES 33.7 billion, substantially reinforcing the nation’s foreign currency reserves.
Consequently, the shilling witnessed a notable appreciation against major currencies, climbing from KES 163 per US dollar to the present rate of KES 144.5, a level unseen since September when reserves stood at KES 1.03 trillion.
The CBK attributes this surge to heightened export earnings and reduced import costs. Nevertheless, the recent downturn in reserves may signal a reversal of this positive trend.
Experts speculate that this decline could be attributed to the Central Bank’s repayment of interest and principal on government debts, particularly following partial settlement of the USD 2 billion Eurobond maturing in June.
The diminishing forex reserves could strain dollar availability, potentially leading to a reversal of the shilling’s recent gains and further depreciation against major currencies. A recent survey conducted by Focus Economics, which consulted economists and analysts from prominent Kenyan banks, anticipates the shilling to surpass the Sh160 mark against the dollar by year-end, undoing the recent gains.
