Kenya’s usable foreign exchange reserves plummeted to Ksh.944.9 billion in the week ended June 24 amidst outcry by manufacturers and importers over the Dollar shortage in the market.
This is compared to Ksh.955 billion a week before, representing a one percent drop, according to the Central Bank of Kenya (CBK) weekly bulletin.
Economists have argued that the Dollar shortage is being occasioned by pent-up demand for the dollars which has led to the depreciation of the Kenyan shilling.
“If the situation remains unresolved, the business community involved with importation, for example, manufacturers, car dealers, will be largely affected and might lead to further closure and job losses,” this is according to Ken Gichinga from Mentoria economics who spoke told Capital FM Business.
Kenya Association of Manufacturers (KAM) Chairperson Mucai Kunyiha on May 30 said manufacturers have been forced to plan for foreign currency payments by purchasing foreign currency in advance resulting in an increase in working capital.
Despite the slump in foreign reserve, the reserve bank, however, remains optimistic that it still meets statutory requirement to endeavor to maintain at least 4 months of import cover, and the East Africa Community (EAC) region’s convergence criteria of 4.5 months of import cover.
Commercial banks’ excess reserves stood at Ksh.36.8 billion in relation to the 4.25 percent Cash Reserves Requirement (CRR).
This even as Kenya Shilling buckled further against the Dollar on June 27, 2022, with only 0.25 units shy of hitting the 118 level.
CBK data shows the shilling traded at 117.75, a 0.6 percent drop in 20 days when it hit 117 levels.
This is partly attributable to increased dollar demand from the oil and energy sectors.
Whereas the Kenya shilling has been weakening by day against the US Dollar, CBK says it remains stronger against other major international currencies, including the Sterling pound and the Euro.
Concerns about inflationary pressures in the major economies increased in the week ended June 23 as the United Kingdom and the United States reported record-high rates of inflation of 9.1 percent and 8.6 percent in May, respectively.
Inflation in Kenya for the month of May jumped to 7.1 percent from 6.4 percent in April pointing out the high cost of living among Kenyans.
Uncertainties over the global economic outlook have increased in part due to the aggressive pace of monetary policy tightening by major central banks.