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Kenya's foreign exchange reserves hit seven-month low

Xinhua, July 27, 2015 Adjust font size:

Kenya's foreign exchange reserves have dropped by 1 billion U.S. dollars since the start of the year as the Central Bank of Kenya (CBK) battles to save a weakening shilling.

Data from CBK showed Monday that the reserves have fallen to a seven-month low of 6.40 billion dollars or 4 months of import cover from 7.43 billion dollars in January.

This drop continues despite the CBK fights to save the weakening shilling, pay foreign currency denominated debt and foot a rising import bill amid shrinking inflows from tourism, tea and coffee.

Tourism has been one of Kenya's top foreign exchange earners, bringing in over 1 billion dollars annually, but fortunes in the sector have dwindled greatly due to rise in terror attacks.

The low foreign exchange reserves challenge for Kenya is exacerbated further by a rise in imports. The country imported goods worth 18 billion dollars last year, up from 15.5 billion dollars in 2013.

Last week, the CBK data showed that the foreign exchange reserves dropped by 97 million dollars, one of the biggest margins in recent times.

The shilling is currently exchanging against the U.S. dollars at an average of 101.91, according to CBK. This is a drop of 0.63 percent from the previous week.

The CBK's Monetary Policy Committee (MPC) two weeks ago raised the regulator's benchmark interest rate by 1.5 percent as it sought to tighten liquidity.

However, while this was the second consecutive time the apex bank was raising the rate by the same margin to cushion the shilling, the move has not helped to save the local unit from weakening against major world currencies.

Kenya's foreign exchange reserves at the end of the first quarter stood at 7.15 billion dollars, which was a drop of 28 million dollars from the January value. The reserves decelerated faster in the second quarter, standing at 6.72 billion dollars at the end of June.

A drop in the reserves, especially below the essential four months cover, means that CBK would not successfully intervene in the forex market in case the shilling is under pressure from international currencies. Enditem