Kenya’s forex reserves have shot up $440 million (Sh44.5 billion) from the beginning of the year to hit $7.51 billion (Sh760 billion) as favorable macroeconomic conditions led to higher forex inflows and lower outflows.
Central Bank of Kenya (CBK) dollar reserves are now at a 15 month-high covering 4.89 months’ worth of imports. At the beginning of this year the country had 4.5 month cover at $7.07 billion.
Governor Patrick Njoroge said Wednesday the reserves have been pushed higher by improving export earnings, a stable currency and lower demand from oil importers after crude prices plunged. “Inflows from tourism and exports like tea and horticulture are strengthening. There are also portfolio inflows, with investors attracted to invest for the long term because of the favorable environment,” said Dr Njoroge. He further noted the stable exchange rate with lower oil prices improving the balance of payments. He predicted that the current account deficit would close at eight per cent of GDP by the end of the year
In the international market, a barrel of crude oil is selling at $43, still over 60 per cent down on the price of $115 seen in June 2014 before the current slide took hold. Domestically, motorists are paying Sh80.71 per litre of petrol in Nairobi that is a six-year low.
Last October, the reserves had dropped below the required four months import cover at $6.25 billion (Sh639.5 billion) amidst a period of shilling volatility that forced the regulator to sell dollars several times to support it.This year, the shilling has strengthened by 1.1 per cent to the dollar to exchange at 101.2 units. As a result of the stable currency, there has been no call on the regulator to sell dollars in the market, with the market conditions instead favorable for dollar purchases.
Greenback demand from the key import sectors of energy has come down on the back of the low price of oil through the first quarter of the year.
In addition to the higher reserves, the country has also secured a Sh152 billion ($1.5 billion) standby facility from the International Monetary Fund (IMF) to be drawn in case of shocks to the economy.The IMF facility combined with the higher reserves help in calming the markets and lowering volatility of the exchange rate by discouraging speculative trading.
The interbank rate has been held in a tight range of between 3.7 and 4.9 per cent over the past two months, with liquidity injections through government payments being balanced by open market mop-up operations through the repo market and primary Treasury bill sales.
According to traders, tourism inflows are improving compared to the low levels seen in 2015, with the sector just coming out of the high season which saw hotel bookings look up from the second half of 2015.