NAIROBI (The Southern African Times) – Kenya’s official forex reserves dipped by Sh38.4billion in October, on the back of low remittance inflows and possible dollar sales by CBK to cushion the shilling.
The country’s dollar reserves have been declining for the past six weeks currently standing at $9.175billion(Sh1.02trillion), according to the latest weekly bulletin.
The reserves have dropped from $9.521billion(Sh1.05trillion) held as of September 24.
The forex reserves are now the equivalent of 5.61 months of import cover, down from 5.82 months at the end of September.
“This meets the CBK’s statutory requirement to endeavor to maintain at least 4 months of import cover, and the EAC region’s convergence criteria of 4.5 months of import cover,” the bulletin read.
Diaspora remittances which are Kenya’s largest source of foreign exchange declined marginally by one per cent in September.
In the month, Kenyans living and working abroad sent home $309.8 million (Sh34.4 billion) down from $312.9 million (Sh34.7billion) sent in August.
Even so, in a similar month last year, total remittances were $260.7 million (Sh28.9billion) meaning Kenyans abroad sent more money this year
The cumulative inflows for the 12 months to September 2021 totaled $3.53 billion (Sh392.3billion), a 19 per cent increase compared to $2.96 billion (Sh329.8 billion) same period previous year.
Further from the reduced remittances, the forex reserves also shrunk on high importer demand which did not match supply further weakening the shilling, according to forex traders.
The local currency has been on a depreciating streak since October 18, trading above the 111 level.
Last Friday, it hit a 10-month high of Sh111.41 to the dollar, according to the Google currency tracker.
The shilling was last at such high levels on December 21 last year when it hit 111.44.
According to forex traders, the shilling is likely to weaken further, due to a lack of adequate hard currency supplies and robust demand.
Kenya’s high import bill has also continued to pile pressure on dollar earnings from exports and tourism as they are unmatched.
Latest data shows the import bill has been increasing since April to Sh172.95 billion in August, a 26 per cent jump compared to Sh137.77 billion in the same period last year.
This however is a drop compared to Sh177.16 billion in the previous month.
Export earnings rose by 13 percent over the period to Sh61.34 billion compared to Sh54.16 billion.
According to Fitch Solutions, Kenya’s huge trade deficit occasioned by high import demand will further weaken the shilling next year.
The financial services agency expects the Kenyan shilling to depreciate from a year-to-date average of Sh108.68 per dollar to Sh112.80 per dollar by the end of the year, averaging Sh109.60 in 2021 as a whole.
