Kenya's USD reserves fall on volatile shilling

The Central Bank of Kenya (CBK) used some 350 million U.S. dollars in the last one month to support the shilling, pushing down the value of foreign exchange reserves by the same margin.

The dollar reserves, latest data from CBK showed Wednesday, stand at 7.28 billion dollars or 4.7 months of import cover, down from 7.63 billion dollars or 4.9 months of import cover early this month.

According to the data, the reserves have been on the decline, dropping to below five months of import cover for the first time early last month.

"This is quite worrying as the rate of decrease in the reserves could be an indication that the CBK is using a lot of dollars to support the shilling," noted Cytonn, a Nairobi-based investment firm.

During the month, the shilling faced intense pressure following U.S. elections and increased dollar demands from oil importers and corporates namely Safaricom and East African Breweries Ltd, which paid dividends of up to 250 million dollars to parent firms in Britain.

The Central Bank mid last month was forced to forestall the fall of the shilling due to speculative trading following US president-elect Donald Trump's surprise victory.

The CBK normally uses the dollars reserves to buttress the shilling if it comes under pressure from international currencies, therefore, the move eats into the foreign reserves.

On Wednesday morning, the Central Bank quoted the shilling at 101.8 against the dollar, a slight decline from last week's position.

However, going forward, analysts expect the shilling to strengthen and the foreign exchange reserves to rise due to increased remittances from the diaspora during the festive season.

The remittances are expected to raise the level of dollars in the market, therefore, supporting the shilling. Endit