Here are our views on the news making headlines today for Kenya:
The Central Bank of Kenya (CBK) foreign exchange reserves have contracted by Sh51 billion ($545 million) in the past four months as dollars were used to shore up the shilling and for debt servicing. Forex reserves stood at Sh646.7 billion ($6.88 billion) last Friday down from Sh697.95 billion ($7.425 billion) as at end of last December according to the monetary policy authority. The reserves had risen from below $5 billion on the back of a $2.75 billion sovereign bond raised last year.
Our View: The CBK embarked on greenback sales to shore up the shilling which is uncertain short-term solution. The shilling is under pressure owing to the debt repayments, trade deficit as well as the rising dollar demand globally. Even as the CBK’s MPC meet today, it walks a thin line in balancing the economic growth and economic risks in managing inflationary expectations as well as shoring up the Kenyan shilling. We believe that the CBR could be maintained at 8.50% or slightly increased (50bps) to support the weakening currency and contain future inflationary pressures.