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Kenya's apex bank digs deeper into dollar reserves as shilling weakens

Xinhua, January 22, 2017 Adjust font size:

Kenya shilling weakened against major international currencies this week, forcing the Central Bank (CBK) to sell more of its foreign exchange reserves.

The local unit declined against the U.S. dollar to trade at an average of 103.9 in the week, down from 103.7 the previous week.

During the week, the currency hit a new low of 104 Thursday before strengthening slightly, according to the CBK data received Saturday.

Against the sterling pound, the shilling traded during the week at 126.9 down from 126.7 the previous week while against the euro, the shilling exchange at 110.5 from 109.3 the previous week.

The CBK responded by selling dollar reserves to buttress the shilling against the pressure, pushing down its gross foreign exchange reservoir by 91 million dollars.

The dollar reserves during the period dropped from 6.94 billion dollars, an equivalent of 4.55 months of import cover to 6.85 billion dollars, an equivalent of 4.49 months of import cover, according to the apex bank.

The trend was a continuation from the previous week, where the shilling depreciated 0.2 percent, with the Central Bank using 114 million dollars to save the currency from falling further.

Official foreign exchange reserves after the intervention declined from 7.06 dollars, an equivalent of 4.62 months of import cover to 6.94 dollars.

Since the beginning of the year, the shilling has weakened 1.5 percent against the dollar, with analysts attributing the depreciation to heightened dollar demand from particularly oil importers in anticipation that the shilling is expected to weaken further.

The shilling is set to come under more pressure following the global strengthening of the dollar and the increasing world oil prices.

However, CBK Governor Patrick Njoroge this week said the institution is not worried about the currency fluctuations and is committed to flexible exchange rate regime.

The currency, however, is faring better against some regional currencies.

"The shilling strengthened against the Tanzania shilling and the Rwanda franc to exchange at 21.4 and 7.9 respectively this week but weakened against the Uganda shilling to trade at 34.7," CBK said. Endit