CBK weekly bulletin for the week ending Friday 27 March reveals that Kenya forex reserve continued to decline standing at USD 7,965 million (4.84 months of import cover) as at March 26. This is from the previous week’s USD 8,298 (5.04 month of import cover) as at March 19.
Low forex reserves and depreciating local currency are associated with high foreign debt interest payments. For instance, Kenya’s external debt increased by Ksh158 billion in the week following the weakening of the shilling.
CBK’s Monetary Policy Committee last week lowered the Central Bank Rate (CBR) to 7.25 per cent from 8.25 per cent and reduced the Cash Reserve Ratio (CRR) to 4.25 per cent from 5.25 per cent. In a measure seen to promote flexibility on liquidity management facilities provided to banks by CBK, the maximum tenor of Repurchase Agreements (REPOs) was extended from 28 to 91 days.
In the week the initial pressure on the shilling was due to a strengthening of the US dollar against most currencies, and low supply with the shilling exchanging at 106.20 on March 26.
There was additional liquidity of KSh 35.2 billion available to the banking sector due to the reduction in the CRR by 1.0 per cent on March 23.
The Central Bank is seeking Ksh115 billion from the IMF and the World Bank meant to cushion the economy from COVID19 impact.