Kenya's dollar reserves drop on falling shilling

Kenya's foreign exchange reserves have begun the year weaker, dropping to below 7 billion U.S. dollars for the first time in many months.

The dollar reserves, official data from the Central Bank of Kenya (CBK) showed Tuesday, stand at 6.9 billion dollars or 4.56 months of import cover, the lowest in about a year.

The foreign exchange reserves had hit a peak of 7.8 billion dollars (5.2 months of import cover) last October, but a depreciating shilling has eaten into the stock.

The Central Bank has in the last months been forced to sell the dollar reserves to buttress the shilling that has come under pressure from international currencies.

Last week, the shilling closed the year at a low of 10.2.4 against the dollar, a drop from 102.3 the previous week, Central Bank data showed.

The apex bank during the period sold unspecified amount of dollars to support the local unit, leading to the decline of foreign reserves from 7.03 billion dollars to the current 6.9 billion dollars.

According to analysts, the shilling was resilient in 2016, depreciating only by an overall 0.1 percent. The currency appreciated most, by 1.2 percent, against the dollar during the first half of the year mainly due to high levels of foreign exchange reserves, which averaged 7.5 billion dollars, and increased diaspora remittances, with cumulative 12 months' inflows to June 2016 rising by 11 percent to 1.7 billion dollars.

However, towards the end of the year, the shilling depreciated driven by global dollar strength after the Fed in the U.S. raised its benchmark rate. The Central Bank support of the shilling led a decline in forex reserves to below 7 billion dollars from 7.8 billion dollars in October, which has led to the drop in the months of import cover below a year average of 4.9 months, noted analysts at Cytonn, a Nairobi-based investment firm. Endit