Covid-19 pandemic slashes forex reserves to a two-year low

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Last week Friday, the Central Bank of Kenya’s foreign exchange reserves fell to $7.858 billion (Sh832.9 billion), which is more than two year low.

The last time such a level was recorded was early March 2018 when the stock of dollars was $7.15 (Sh729.81).

According to the regulator, the reserves have fallen by $900 million since the start of the year and can only cover 4.75 months of import.

However, Central Bank has remained to be optimistic about state activities.

“Usable foreign exchange reserves remained adequate at $7.858 billion,’’ said the bank.

The fall comes at a time when Central Bank has been on the move to sell dollars and mop up shillings in the local market to maintain stability.

The fall of the reserve has been blamed on coronavirus pandemic, which has highly disrupted economies globally, putting pressure on currencies.

“The shilling had remained under pressure since mid-March when the country reported its first case of Covid-19…foreign investor outflows have increased, and CBK has used its forex reserves in a bid to support the shilling,” said AIB capital.

Local currencies are protected by forex reserves during economic shocks, that make investors opt to offload them for stronger and more stable currencies.

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Anthony Kiratu is the Founder of Finsolutions. He is a financial analyst with over 5 years experience in research, investment advisory, valuation and financial modelling. Anthony is a member of the Institute of Certified Investment and Financial Analysts and Institute of Certified Public Accountants of Kenya. He is passionate about development of African Capital Markets through training of investors and dissemination of information for sound financial and investment decision making process. He is also a part-time lecturer in the Certified Investment and Financial Analyst course in the subjects of International Finance, Portfolio Management, Equity Investment Analysis, and Fixed Income Securities. Email: anthony@finsolutions.co.ke Contact: +254 780216631

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