The ongoing slide of the Kenyan shilling has been attributed to increased foreign payments by the private sector by the Central Bank of Kenya (CBK)
This comes on the back of the shilling trade at a two-year low valuation against the US dollar even as the local unit takes a further hit from increased market liquidity.
The shilling traded at between Ksh.103.74 and Ksh.104.12 on Thursday before settling at a much improved Ksh.103.88 according to tracking by Bloomberg, having touched a low Ksh.104.02 at the close of trade on Wednesday.
CBK Governor Patrick Njoroge attributed the continued erosion of the shilling’s value to one-off payments in foreign-denominated currency, in a factor he says has piled the devaluation pressures.
Increased offshore payments have spelt doom for the shilling whose value continues to grapple with an expanded flow of money in supply over the last month.
The money market remained relatively liquid during the week ending July 18, largely supported by government payments to outdo remittances from tax.
Commercial banks’ excess reserves which make for an indication of market liquidity stood at Ksh.8.96 billion at the close of last week while the average inter-bank rate decreased to two per cent from 2.38 per cent from the previous week.
At the same time, CBK has backed its stored firepower represented by a solid external payments account.
The narrowing of the current account deficit to 4.2 per cent of GDP in 12 months to June 2019 from a higher 5.4 per cent in May of 2018 has propped up the foreign exchange market to retain its relative stability.
Growth in remittances has been the greatest driver to the health of the current account has surged to a record Ksh.30.6 billion to take the cumulative 12-month flow of the diaspora flows to Ksh.287 billion.
The strengthened current account has seen the CBK usable foreign exchange reserves level up at Ksh.1 trillion for the third month running to represent an equivalent 6.2 months import cover.
In addition to the regularly traded t-bills, CBK has been an active participant in the money markets having just completed the auction of a Ksh.40 billion fifteen-year treasury bond.
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