CBK forex reserves fall to 8-month low

Central Bank of Kenya (CBK) official reserves have fallen to their lowest in eight months since mid-June 2021.

New data from the reserve bank shows the largely dollar-denominated stock of foreign currencies fell to Ksh.902 billion ($7.84 billion) as of March 31.

The current stock of reserves is representative of 4.66 months of import cover for Kenya and brings the reserves closer to the lower limit set by both the EAC convergence criteria and the CBK.

The reserve bank endeavours to maintain at least four months of import cover while the East Africa Community region’s convergence criteria stands at 4.5 months.

During the cycle from mid-June last year, the official reserves peaked at Ksh.1.1 trillion ($9.629 billion) or a representative 5.89 months of import cover on September 9.

The fall of the reserves has coincided with the weakening of the Kenya shilling which crossed the Ksh.115 mark against the US dollar on Friday, its weakest rate on record to date.

The official reserves are describable as assets held in reserve, mostly in foreign currency by Central Banks and are used as a hedge against market shocks including the rapid devaluation of local currency.

The CBK often sells dollars from the reserve to the money markets as a means to replenish FX liquidity and in the process stamp out volatility in the local unit.

According to the CBK, the reserves ensure the availability of foreign exchange to meet the country’s external obligations including external debt service.

About two-thirds of the reserves are sourced from external debt financing while the balance is topped up by multiple sources including diaspora remittances.

CBK says its usable foreign exchange (FX) reserves remain adequate

[$1=Ksh.115.08]