Kenyan shilling falls most against dollar in more than 3 years

The Kenyan shilling fell the most in more than three years even as Central Bank of Kenya (CBK) resumed buying foreign exchange from lenders in an effort to boost its reserves.

The shilling weakened as much as 0.9% to 102.35 against the U.S. dollar in Wednesday trading

The central bank, in a letter to commercial banks, said it plans to buy as much as $100 million from lenders each month from March to June as it seizes an opportunity of savings from lower oil-import prices to boost foreign reserves.

In a memo, the Central Bank reassured the market that the purchases will be conducted in a way that won’t introduce instabilities in the foreign exchange market.

In a circular to Chief Executive Officer of Commercial Banks, William Nyagaka, the director of Financial Markets Department at the CBK said the Central Bank would purchase a minimum of USD 100 million from banks at prevailing rates in each deal.

He said this would “bolster CBK’s preparedness to deal with heightened global volatility and uncertainties.”

This is due to the ongoing coronavirus epidemic that has so far spread to 60 countries across the world, with the global economy now facing the imminent risk of a slowdown.

Last week, CBK foreign exchange reserves fell by Ksh10 billion at a time when the National Treasury was due to pay interest to lenders of the USD2 billion Eurobond which Kenya issued in February 2018.

CBK data shows the reserves stood at USD8.4 billion on February 27, down from USD8.5 billion a week earlier.

A number of analysts who spoke to Metropol TV said the CBK’s move may, however, see further weakening of the shilling versus the dollar as it could see banks hold more hard currency.