Kenya’s foreign exchange reserves are now at the same level as the East African Community (EAC) criteria for import cover.
The reserves have fallen by Ksh 27.8 billion (about 254 million U.S. dollars) since the start of March.
Currently, the forex stands at USD 7.4 bn (equivalent to 4.5-months of import cover), which is above the statutory requirement of maintaining at least 4.0-months of import cover, and the EAC region’s convergence criteria of 4.5-months of import cover.
In the reporting week, according to weekly data released by the Central Bank of Kenya, the reserves declined from 7.605 billion dollars at the end of February to 7.351 billion dollars on March 11.
“The usable foreign exchange reserves remained adequate at USD 7,351 million (4.52 months of import cover) as at March 11. This meets the CBK’s statutory requirement to endeavour to maintain at least 4 months of import cover, and the EAC region’s convergence criteria of 4.5 months of import cover,” the CBK said.
The decline, “may mean the government of Kenya will struggle to support the local currency when it depreciates,” says Cytonn Investments.
However, NCBA Research in its March Economic Update says this “may be reversed by the IMF facility although the timing remains uncertain.”
The shilling currently is trading at KSh 109.65 against US dollar, is expected to remain range-bound in the immediate term supported by muted dollar demand and hard currency flows from the agriculture sector.
“Fundamentally, steady inflows from diaspora remittances and improved export receipts, as well as the relief from reduced external debt service following successful debt restructuring, could bolster the short-term outlook for the shilling,” NCBA stated adding that other risks could stem from effects of higher oil prices and a resurgent US dollar.
“In the near term, this could place a floor for the shilling at 109.50. At the same time, losses may be capped at the 110.50 level mostly on fears of central bank intervention.”