CBK reserves remain unchanged amid dollar-demand pressure

Central Bank of Kenya (CBK) usable foreign exchange remained barely unchanged in the week ending Friday even as the reserve bank shopped for dollars from commercial banks.

The CBK quoted its usable foreign exchange reserves at Ksh.865.4 billion ($8.411 billion) from Ksh.865.2 billion ($8.409 billion) last week.

The negligible change to reserves comes days after the reserve bank embarked on a dollar buying quest from commercial banks with the aim of building the stock to above normal levels in its preparedness to deal with heightened global volatility with targets of raking in up to 400 million dollars or an Ksh.41.2 billion.

Nevertheless, CBK’s dollar buying plan has had reversal effects on the valuation of the shilling with the local unit touching an year to date low of Ksh.102.89 in its trading against the US dollar on Thursday.

This is as the initiative sparked intense trading activity with traders holding a bias for the green buck.

“Once a great giant like the CBK announces the bulk purchase of that nature, you would expect sellers to hoard dollars in a quest to fork out a better price,” an industry source told Citizen Digital on anonymity grounds.

Fashioned under basic demand and supply principles, heightened US dollar demand alongside potential hoarding sees more shillings chasing fewer dollars to end in an undervaluation of the local unit.

Pressure on the shilling was however off in Friday’s trading with the shilling gaining slight ground on the dollar to trade at markets close Ksh.102.72 having spent the day on a Ksh.102.48-Ksh.102.80 range.

Fluctuations to the valuation of the shilling are bound to feature as the CBK stays on the dollar buying run to the end of June with monthly purchases capped at $100 million, an equivalent Ksh.10.3 billion.

Nevertheless, the CBK will seek to stamp out expensive bids from aggressive investors with the reserve bank already saying it will price the purchases at its own discretion.

CBK usable foreign exchange reserves presently stand at an equivalent 5.1 months import cover and have by far remained above the statutory four-month cover and the East African Community convergence criteria of 4.5 months.

The reserves provides buffer to the monetary authority to meet the balance of payments financing needs among other related purchases.

At their highest in May last year, CBK’s usable foreign exchange reserves stood at $13.4 billion, an equivalent Ksh.1.4 trillion to represent the largest ever import cover at 6.4 months.