Kenya’s foreign exchange reserves dropped by $0.23 billion (KSh27.1 billion) in the week ended July 22 from $7.95 billion (KSh942 billion), the latest data released by the central bank showed.
As a result, the usable foreign exchange reserves stood at USD 7,727 million, translating to 4.46 months of import cover as of July 21.
“This meets the CBK’s statutory requirement to endeavour to maintain at least 4 months of import cover,” the CBK said in its Weekly Bulletin.
According to NCBA Market Research, FX Reserves have declined to 4.45 months of imports and could drop to 3.90 months by year’s end (IMF), below the threshold of 4.0 months of import cover.
“Dwindling FX reserves should further complicate central bank action against inflation, as sustained depletion may raise sustainability concerns over the current account position, underpinning further losses for the local unit.”
NCBA adds that despite the support from the IMF, the government will struggle to fund the deficit as financial markets locally and internationally tighten.
Furthermore, a weakening local currency has increased the external debt service obligations in shilling terms. The rising expenditure needs will amplify the appetite for domestic borrowing, adding pressure on interest rates.”