Price hikes loom as forex reserves set to hit 11-year low

CBK has insisted that it has enough reserves, which besides being used for the government's external obligations such as servicing debts and importing certain goods such as drugs, they are also used to smoothen the market, with the regulator getting into the market to sell more dollars when these foreign currencies are inadequate.

"We have adequate reserves, but the [foreign exchange] markets need to improve in the way they are functioning. There was noise in the market as we came towards the electioneering period. That led to weaker performance of the market," said Dr Njoroge in a past press briefing.

Forex reserves have for a while remained above the statutory level of covering at least four months of imports.

IMF noted in the report that they averaged 4.3 months of imports of goods and services in the years between 2010 and 2018.

Reserves of foreign currencies and other assets such as gold rose to 6.2 months of import cover in 2019 before declining to 4.5 in 2020.

The country's reserves tend to rise sharply when the country receives loans such as the Eurobond and tends to drop when it pays back a loan.

Recently, Deputy President Rigathi Gachagua claimed CBK did not have enough foreign exchange reserves to be used by oil importers, forcing the regulator to fire back with a tutorial to the country's second in command on how the forex market works.

Although it is true that importers, including those of oil, were struggling to get dollars to buy this critical input, CBK insisted that as a regulator it is not an active player in the forex market.