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Regional central banks shore up forex reserves

Monday December 11 2017
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Kenya’s foreign currency reserves dwindled during the electioneering period heading towards the minimum four-month import cover stipulated in the law. FOTOSEARCH

By MARYANNE GICOBI

Kenya’s foreign exchange reserves are picking up slightly after falling to an 11-week low towards the end of November.

According to data by the Central Bank, Kenya’s import cover increased to $7.09 billion — an equivalent of 4.71 months import cover — from $7.08 billion, or 4.70 months of import cover.

This implies renewed demand for dollars, by corporates, the government and importers, which outweighed inflows. Besides imports, CBK uses the reserves to iron out adverse volatility of the shilling by selling dollars.

Kenya’s foreign currency reserves dwindled during the electioneering period heading towards the minimum four-month import cover stipulated in the law.

The reserves came down from 5.07 months’ worth ($7,545 billion) in mid-September.

The shilling defied the volatility of the election period to remain relatively stable, hovering at around Ksh100 per $1. But it has been under pressure for several months now as the country used dollars to buy maize and standard gauge railway inputs.

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Last week, the Kenyan shilling jumped to a three-month high against the dollar as foreign investors sought local stocks and government bonds due to an apparent reduction in political risks.

Commercial banks quoted the shilling at 102.75/95 against the dollar, its strongest showing since September 18.

According to analysts, the shilling has been considerably resilient. Seven out of the world’s 10 worst performing currencies are in African countries, including the Ghana cedi, Ethiopia’s birr, Nigeria’s naira and the Uganda shilling.

But last week, the Ugandan shilling was firm, supported by healthy inflows from charities, exporters and remittances from the diaspora.
The Ugandan central bank has been supporting the currency by mopping up excess liquidity from the money markets.

Appreciation of shilling

The Tanzanian shilling hit a three-month low in the last week of November, with commercial banks quoting it at Tsh2,240/47 against the dollar. Experts say that it will strengthen towards the end of the year.

Analysts attribute the appreciation of the shilling to increased dollar inflows from exports, mainly cashewnuts, and other services.

Uganda’s current forex reserves stand at $3.4 billion — equivalent to five months of import cover — a reduction from $3.5 billion, or 5.3 months’ cover.
Tanzania’s reserves are at $4.3 billion or 4.3 months of import cover.

Rwanda’s reserves are expected to fall below the East African Community’s convergence criterion of four months’ cover in the coming year, as the construction of Bugesera Airport goes into top gear.

Data from its Ministry of Finance and Economic Planning shows the reserves will drop from $1 billion to $989.2 million, reducing the import cover to an average of 3.5 months in 2018.

The country’s reserves have been under pressure due to falling exports, increasing imports and the dollar firming against the franc.

READ: Why Rwanda forex reserves could fall below IMF 

In Burundi, the central bank has been battling a shortage of foreign currency due to a political crisis that has lasted two years.

The central bank has continued to loosen its monetary policy in efforts to plug the widening fiscal deficit.
A black market is flourishing, with the exchange rate almost double the official rate. The dollar exchanges at Bif2,930 on the black market, against the official rate of Bif1,737.

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