The Central Bank of Kenya (CBK) is buying dollars to build up foreign exchange reserves and curb volatility, Governor Kamau Thugge disclosed during the post-MPC briefing on Wednesday.
- Foreign exchange reserves have been on an upward trajectory in the past 5 weeks, accumulating about US$837 million in the period.
- The current usable reserves stand at US$8.2 billion, enough to maintain 4.2months of import cover according to data by CBK.
- Governor Thugge attributed the increase in foreign exchange reserves to the Central Bank buying excess dollars in the foreign exchange market to provide adequate buffers against potential shocks.
“We have had a significant increase in foreign exchange, both from banks, but also remittances. So, in order to moderate the fluctuations and volatility in the exchange rate, we have indeed been buying foreign exchange,” Governor Thugge said in the post MPC briefing.
The CBK governor disclosed that the apex bank has been mopping up excess dollars in the market to curb volatility. In February, the shilling had the highest volatility in 12 years on the back of massive dollar inflows from the US$1.5 billion Eurobond buyback and the subsequent KSh70 billion infrastructure bond, causing an oversupply of the foreign currency.
Foreign exchange reserves held by the CBK are a national asset held as a safeguard to ensure availability of foreign exchange to meet the country’s external obligations, including imports and external debt service. The CBK can increase its holdings by purchasing from the domestic market including commercial banks with the details withheld by the parties.
The foreign reserves fall above the 4 months statutory requirements, however lower than the EAC’s convergence requirement of 4.5 months of import cover.
The shilling has remained stable, oscillating within the KShs. 129 mark against the greenback owing to the high dollar inflows streaming in from tea exports and the growing remittances from Kenyans living and working abroad.
The Central Bank of Kenya (CBK) has cut the benchmark lending rate by 0.75% to 12.00%, as expected, to support economic activity. The decision, delivered by the Monetary Policy Committee (MPC), was fueled by the easing inflation coupled with the slowdown in private sector growth in the Q2 2024.
