Foreign currency deposits rise to 834 billion shillings


Foreign currency deposits rise to 834 billion shillings

The Central Bank of Kenya building in Nairobi. PICTURES | DENNIS ONSONGO | NMG

The value of foreign currency deposits in local banks stood at a record high of 834.5 billion shillings in April, boosted by the depreciation of the shilling against the dollar and the cautious accumulation of buyers.

Deposits rose by 23.4 billion shillings month-on-month, latest data from the Central Bank of Kenya (CBK) shows a third consecutive monthly increase which coincided with the shilling weakening to a higher historic low of 117.29 units. to the dollar of 113.14 at the start of the year.

Higher hard currency deposits should ideally provide easier access to forex for importers, but the past two months have seen them complaining of difficulties in accessing it from banks.

Experts say the issue of dollar availability largely points to inefficiency in the interbank foreign exchange market, which boils down to demand exceeding supply.

It is therefore unlikely that those who hold dollars will ease their positions for the sake of knowing whether they will replenish their holdings to fund foreign currency obligations.

“The 2.9% month-on-month jump could be attributed to currency appreciation, with the dollar strengthening against the shilling by 1% on average in April. In addition, the balance was organic growth in foreign currency deposits by residents against the backdrop of not just local but global risk sentiment,” said Churchill Ogutu, Economist at IC Asset Managers (Mauritius).

The shilling’s depreciation to record lows is due to a rapidly rising import bill that has outpaced earnings from exports, diaspora remittances and the tourism sector.

In the first quarter, imports rose 17% to 591.6 billion shillings from 507.5 billion shillings last year, while exports rose 9% to 207.7 billion shillings from 191 .4 billion shillings.

Fuels, foodstuffs and industrial goods were the main contributors to rising import costs, reflecting rising world prices for crude oil, wheat and cooking oil largely linked to the Russia-Ukraine conflict .

Supply chain constraints as global economies deal with pent-up demand have also increased shipping costs, fueling higher inflation.

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