Central Bank of Kenya has said that the forex reserves dropped in the first week of 2019 from Sh819 billion to Sh805 billion or 5.2 months of import cover as at January 4.
The drop has impacted the shilling at the market exchange against the dollar for Sh102.1 from Sh101.8 on new years’ eve due to demand for hard currencies from traders.
The CBK weekly bulletin further states that the country’s international reserve is above the required minimum by regional standards.
“This fulfils the requirement to endeavor to maintain at least four months of imports cover, and the EAC region’s convergence criteria of 4.5 months of imports cover,” the bulletin read.
Kenya’s leading forex contributor, diaspora transmittals increased to Sh64.7 billion in third quarter of 2018, a Sh13.5 billion rise.
In July, 2018, the forex reserve posted the highest mark of Sh1.22 trillion which in turn increased the import cover.
The banking regulator said shilling’s fluctuations due to unpredictability of international markets brought by trade tensions between the world’s greatest economies.
In September 2018, CBK data showed the status of import cover and foreign exchange reserves in its capital account at Sh859.67 billion with import cover holding on at 5.6 months compared to a previous average of 5.76 months.
The decline does not bear a bad effect to the economy however, it lowers foreign investments and increases the risk of a country losing the amount of foreign reserves held by its central bank.