CBK dollar reserves near lower limit after plunging by Ksh.27 billion

The Central Bank of Kenya (CBK) usable foreign currency reserves have neared the lower limit plunging by Ksh.27 billion ($246 million) this past week. The reserves which now represent four and a half months of Kenya’s import cover at Ksh.811.8 billion ($7.4 billion) now risks breaching the prescribed thresholds. The reserves are for instance barely clear of the East African Community (EAC) region’s convergence criteria of 4.5 months of import cover and CBK’s own statutory requirement of covering four-months imports. The sharp decline in the mostly dollar denominated reserves is largely attributable to external interest payments on debt falling due at the end of February. The government was for instance tasked with making interest reimbursements amounting to Ksh.8.6 billion covering repayments to the Ksh.219.4 billion ($2 billion) Eurobond issued in 2018. At the same time, the reserves have been dented over the past year by slower inflows from sectors such as tourism and foreign direct investments (FDIs) on the back of COVID-19 disruptions to Kenya’s external sector. The reserves have for instance fallen from a high of Ksh.965.3 billion ($8.8 billion) or 5.4 months worth of imports cover at the start of 2020. CBK has further sold dollars from its reserves to iron out unsatisfied demand for the green buck in the inter-bank market for a large part of 2020 which packed pressure on the Kenyan shilling. Nevertheless, the reserves are set for replenishing as the economy rebounds alongside the expected booking of fresh dollar-denominated loans from institutions such as the World Bank and the IMF before the end of June. About two-thirds of the CBK reserves are usually derived from external financing with the balance arising from the receipts of international trade.

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