CBK allays fears over tumbling shilling
The Kenyan shilling has declined against the US Dollars to a two and a half year low
Demand for dollars to pay dividends to foreign shareholders by companies is to blame for the depreciation in value of the Kenyan shilling, the Central Bank has said.
In moving to allay the fears that have gripped the market following a decline in value of the Kenyan shilling against the US Dollars to a two and a half year low in the last week, the Central Bank, on Monday said that the increased pressure on the local currency is attributed to seasonal factors as corporations pay out dividends to external shareholders.
“This phenomenon has been observed around this period in the previous years,” the CBK said in a statement.
Analysts have blamed the weakening of the shilling to prevailing insecurity challenges in the country, which has hit the tourism sector hard and reduced dollar inflows and panic buying from importers.
In the last two weeks, the shilling has depreciated to a two and a half year low of 88 to the dollar.
It recovered slightly at some point during trading last Friday after Central Bank sold dollars to commercial banks.
The CBK however said that the current level of foreign exchange reserves of $6.24 billion (Sh549 billion), equivalent to 4.4 months of import cover, are sufficient to provide adequate cushion against temporary shocks.
In addition, the CBK noted that proceeds from the debut Eurobond will significantly raise the level of foreign reserves with the exchange rate expected to come under pressure to appreciate in the coming months.
“The Central Bank therefore expects the situation to normalize as the impact of seasonal factors dissipates,” the CBK said.
On Monday, the shilling opened trading at 87.70/87.90 to the US Dollar but is expected to weaken further amid support from CBK’s continuous mop-up of liquidity from the market.
Last Friday, the CBK mopped up Sh7.25 billion.
Analysts say the shilling remains vulnerable to the current insecurity problems and pressure from importers and manufacturers.
Kenya has faced a number of terror attacks in Nairobi and Mombasa, a situation that has seen the United Kingdom, United States and Australia, the country’s key source market for tourists, issue travel advisories that have seen hundreds of tourists vacate the country.
