Kenya’s foreign exchange reserves declined to a decade low this week, pushed down by a rise in demand for dollars by importers and a weakening currency, the Central Bank indicated in its update on the financial markets released on Friday evening.
The forex reserves declined to 7.213 billion U.S. dollars, which cover 4.04 months of import, from 7.286 billion dollars, 4.11 months of cover at the end of last week, said the apex bank.
The last time the reserves stood at about 4 months of the cover was in August 2012, according to the apex bank, which, however, noted the current level of forex is enough to cover the country’s import needs and cushion the shilling.
The surge in dollar demand is attributed to importers seeking to meet their end-month needs; which has piled pressure on the shilling.
The shilling continued with its downward trend against major foreign currencies this week, standing at a historic low of 121.45 to the dollar, forcing the bank to stabilize it by selling dollars.
The International Monetary Fund (IMF) in its latest regional economic outlook for sub-Saharan Africa projects that Kenya’s forex reserves will fall below the psychological four-month import cover by the end of the year.
The global lender notes that the reserves at the close of 2022 will stand at 3.9 months of cover, down from 4.4 months in 2021.
However, the IMF forecasts that the reserves would improve in 2023. Kenya’s dollar inflows have been hit by the effects of the Russia-Ukraine conflict and the hiking of interest rates in advanced economies like the U.S., which has led to, for instance, foreign investors’ flight from the east African nation’s stock market.
