CBK steps up shilling ‘defense’ amid excess cash in system

The Central Bank of Kenya (CBK) has stepped up open market operations (OMOs) to take excess liquidity in the finance/ inter-bank market as the shilling comes under new pressure.

The reserve bank has been an active market participant through its sales of repurchase agreements (repos) to trim the volumes of excess cash in circulation.

Last week for instance, the CBK mopped Ksh.112.6 billion from circulation as it sort to drain out part of the high liquidity seen in the inter-bank market.

On Monday, the CBK continued its repo run as it opened bids for repos worth Ksh.35 billion.

The step up by the lender of last resort comes on the backdrop of new weakening by the shilling which is currently trading at a four months low.

New pressure on the value of local currency has been attributed on increased dollar demand from importers after a surge in oil prices in recent months and anxiety over the economic recovery trend as COVID-19 infection rates surge again.

Nevertheless, the financial markets have been awash with liquidity as banks remain cautious in lending to present an equal hit to the foreign exchange rate as the increased demand for dollars.

The increase in liquidity has been demonstrated by continued high appetites for government securities as both Treasury bills and bonds remain largely oversubscribed.

Similarly, the inter-bank rate sits at a low 3.25 per cent mirroring the high pool of cash available for lending among banks.

The CBK is yet to tap its usable foreign exchange reserves which would have seen it sell dollars to meet any unmatched demand for the currency.

Last week, the reserves remained relatively unchanged and rose slightly to $9.352 billion (Ksh.1.01 trillion) representing an enhanced 5.72 months of import cover.

The shilling was quoted trading at Ksh.108.76 against the US dollar at the close of trading on Friday and opened trading on Monday at Ksh.108.84.

In its weekly bulletin, the CBK termed the shilling ‘stable’ against both major international and regional currencies.

The CBK says it intervenes to mitigate any volatility in the foreign exchange rate but does not set or influence the direction of the shilling.