Deepening forex reserves to ease pressure on CBK

Deepening foreign exchange reserves coupled with improving balance of payments could influence central bank decision in the next monetary policy meeting, analysts have said.

Tuesday March 8 2016

Kenya's foreign currency reserves rose last week to four months of import cover, providing temporary relief to pressure on the shilling. FILE PHOTO |

Deepening foreign exchange reserves coupled with improving balance of payments could influence central bank decision in the next monetary policy meeting, analysts have said. FILE PHOTO |  NATION MEDIA GROUP

By EDWIN OKOTH
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Deeper foreign exchange reserves coupled with improving balance of payments could influence central bank decision in the next monetary policy meeting, analysts have said.

The scenario comes at a time when inflation is trending lower and eases pressure on CBK which has in the recent past been selling dollars to support the currency.

CFC Stanbic bank chief economist Jibran Qureishi said the country’s foreign reserves outlook may continue staying stable allowing a downward revision of the Central Bank Rates in future MPC gatherings.

“The oil prices remain low and that means there is no pressure on the import bill. Tourism is also recovering while Kenya secured a Sh7.6 billion syndicated loan late last year. These fundamentals have supported the shilling keeping it stable and with the rain season closer, inflation may not shoot leaving the regulator with an easy option of reducing CBR in the future, not this month though,” Mr Qureishi said.

HIGH VOLUMES

CBK data indicates that Kenya maintained a high volume of usable Foreign Exchange reserves that can provide 4.62 months of import cover.

She shilling maintained an average of 101.62 against the US dollar across the final week of March while staying stable a 141.84 average against the pound in the same period.

Analysts had warned that the cover would have fallen below the minimum requirement had the Central Bank continued to draw on the reserves at the same rate after the  cover fell progressively during the first seven months of the year to August.

In addition to currency support, forex reserves are also used in external debt repayment, while they can also be impaired by valuation losses when the local currency weakens against the dollar and other hard currencies.

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