Central Bank of Kenya cry foul over decline in forex reserve

Central Bank of Kenya. [Photo: Standard]

Central Bank of Kenya is hit by the decline in the country’s forex reserve (money held in terms of foreign currencies or assets which is meant to cushion the economy in paying liabilities if need be).

The current report shows that the foreign exchange reserves came down to Sh14.65 billion in the last three weeks lowering the import cover.

This has come about due to a decline in local currency exchange with the dollar which is currently trading at Sh101.

CBK recently released data showing the status of import cover and foreign exchange reserves in its capital account. The reserves were $8.507 billion which is equivalent to Sh859.67 billion as at September 20 with import cover holding on at 5.6 months compared to a previous average of 5.76 months.

The decline has been due to foreign investor exits from the stock market.

The decline does not bear a bad effect however it lowers foreign investments and increases the risk of a country losing the amount of foreign reserves held by its central bank.

External lenders are likely to assess the amount of a country’s foreign reserve before giving any loan. This therefore minimizes chances of the country seeking a loan from qualifying, attracting high interest rates on the borrowed loan.