Forex reserves swell to four-month high on IMF Sh79bn injection

The disbursement of the $739 million (Sh79 billion) economic support loan from the International Monetary Fund (IMF) has helped push the Central Bank of Kenya (CBK) forex reserves to the highest level in four months, promising support for the shilling, which has come under pressure against the dollar this year.

The CBK said in its latest weekly bulletin the reserves stood at $8.532 billion (Sh913 billion) last Thursday, equivalent to 5.14 months of import cover. This is the highest since January 9, when they stood at $8.543 billion (Sh914 billion).

The proceeds of the IMF loan to the Treasury have now been sold to the CBK in exchange of shillings for the money to be utilised locally.

“Foreign exchange reserves are projected to remain adequate through 2020 (helped by) additional financial flows from international finance institutions in support of the government’s efforts, such as the IMF rapid credit facility of $745 million and World Bank’s $1 billion,” CBK governor Patrick Njoroge told a Senate committee in a presentation on May 7.

“Foreign exchange reserves are projected to close the year at about five months of import cover.”

Over the past four months, the reserves have been falling steadily, partly due to external payment obligations such as interest on external debt and possible support of the shilling in the market as it came under pressure.

There has also been a fall in inflows, particularly from tourism and horticulture sectors which have been hit hard by the Covid-19 outbreak.

The CBK normally buys or sells dollars in the market to stave off exchange rate volatility, although it does not disclose details of its participation in the forex market.

Since the beginning of the year, the shilling has seen its exchange rate against the dollar depreciate by 5.6 percent, to 107.03 units to the greenback.

In early March, CBK said it would buy $400 million (Sh42.8 billion) from banks over a period of four months to increase dollar reserves amid rising uncertainties in the global market over the coronavirus outbreak.