The Kenyan shilling has remained stable against the US dollar even after the dollar made a huge surge this week after the election of former US President Donald Trump. This surge resulted in many major currencies, including the Yen, Euro, and Pound, losing gains against the dollar before the election.
This comes as the government’s forex reserves have hit an 11-month high.
According to CBK's weekly bulletin, Kenya’s forex reserves have reached USD 9.32 billion (about Ksh1.2 trillion at current exchange rates), as of November 7, the highest recorded this year. This is as the shilling continues to steadily exchange at Ksh129.20 against the US dollar.
This meets the CBK’s statutory requirement to endeavor to maintain at least four months of import cover.
The November numbers are a stark contrast to the recorded figures in January this year when Kenya’s forex reserves stood at USD 6.82 billion (about Ksh879.7 billion at current exchange rates).
All in all, foreign exchange reserves have been on an upward trajectory over the course of the year. Kenya’s forex reserves hit the USD 8 billion mark (about Ksh1.03 trillion at current exchange rates) for the first time this year in September.
Earlier in October, CBK Governor Kamau Thugge attributed the increase in foreign exchange reserves to the Central Bank buying excess dollars in the foreign exchange market to provide adequate buffers against potential shocks.
Thugge was speaking during the post-Monetary Policy Committee (MPC) briefing last month. He disclosed, “We have had a significant increase in foreign exchange, both from banks, but also remittances. So, to moderate the fluctuations and volatility in the exchange rate, we have indeed been buying foreign exchange."
Foreign exchange reserves held by the CBK are a national asset held as a safeguard to ensure the availability of foreign exchange to meet the country’s external obligations, including imports and external debt service. The CBK can increase its holdings by purchasing from the domestic market including commercial banks with the details withheld by the parties.
In February, the shilling had the highest volatility in 12 years on the back of massive dollar inflows from the USD $1.5 billion Eurobond buyback and the subsequent Ksh70 billion infrastructure bond, causing an oversupply of the foreign currency.
The reserves normally dwindle when the Central Bank repays interest or principal on government debts and rises when it receives a foreign loan. A drop in forex reserves can put a strain on dollar supply causing the shilling to weaken.
The shilling has remained stable, oscillating within the Ksh129 mark against the greenback owing to the high dollar inflows streaming in from tea exports, growing remittances from Kenyans living and working abroad, and tourism occasioned by the incoming December holidays. This comes even after increasing demands from the oil and manufacturing sectors.
The stability of the shilling is a major advantage, especially in a global economic landscape that faces persistent volatility.
