CBK dollar reserves fall by Ksh.6 billion

The store of usable foreign exchange reserves at the Central Bank of Kenya (CBK) shrunk by a marginal Ksh.6.1 billion ($56 million) on the back of the recent weakening of the shilling.

The lower reserves are an indication to the possible sale of dollars by the reserve bank to stem volatility in the local unit which has been under pressure in the past month.

Traditionally, the CBK sells dollars in the open market in an initiative to smooth volatility in the shilling by replenishing the potential demand for dollars.

Pressure on the shilling has nevertheless been linked to factors beyond just heightened demand for dollars to include increased liquidity in the financial system and renewed uncertainty over the impact of the COVID-19 pandemic on the economy.

Official foreign exchange reserves at the CBK remain steady at just over Ksh.1 trillion and represent 5.68 months of import cover which above the threshold of government at the EAC convergence criteria.

Meanwhile the shilling was quoted at Ksh.109.26 against the US dollar at the close of trading on Friday having weakened to a four months low earlier in the week.

The shilling however continues to exhibit less volatility in comparison to other regional and global currencies such as the South African rand, the Turkish Lira and the Nigerian Naira.

However, the shilling has almost lost all of its gains against the US dollar in the year so far with its return against the green buck currently sitting at a mere 0.04 per cent having come down from gains as high as 1.3 per cent.