CBK dollar reserves under pressure amidst weakening shilling

The reserves which are mostly dollar-denominated have remained below five months of import cover over the last one month and closed last week at Ksh.912.8 billion ($7.979 billion).

Previous to the last 30 days, the reserves only fell below the five import cover at the end of June 2021.

Nevertheless, the reserves still meet CBK’s statutory requirement of sticking to at least four months of import cover and the EAC region’s convergence criteria of 4.5 months of import cover.

External debt repayments alongside CBK’s open market operations (OMO) to rein in volatility in the local unit including the sale of dollars in the money markets are attributable to the thinning reserves.

The reserve bank has for instance been forced to come to markets through OMOs to release pressure on the shilling which is currently trading around the Ksh.114.4 mark against the green buck.

The official reserves have however been boosted by improving export and tourist receipts alongside consistent growth in diaspora remittances.

At the same time, new external financing flows including last week’s Ksh.85.8 billion ($750 million) loan from the World Bank are set to prop up the store.

About two-thirds of Kenya’s official foreign exchange reserves stem from external government financing.