The Central Bank of Kenya (CBK) should engage banks in fixing the prevailing puzzle where dollar-denominated deposits have hit the Sh1 trillion mark amid a persisting shortage of foreign currency in the market.
CBK’s latest data shows that foreign currency deposits hit Sh1.058 trillion in March, a 7.19 per cent increase from Sh987.7 billion in February.
This is in a market where foreign exchange reserves have been on the decline, touching $6.29 billion or 3.50 months of import cover as of mid-May against the country’s desired minimum of four months or the East African region’s 4.5 months.
The shilling continues to lose ground against the dollar and the official rate is now averaging 138 units, even as commercial banks sell at above 141 units in an environment of persisting shortages.
Part of the reason for stockpiling the dollars is also linked to the global happenings such as hikes in US benchmark rates that have added strength to the greenback.
CBK should engage all banks on a working solution especially with some players silently feeling there have been hostile regulations governing forex trading, leading to disorder in the market.
Only the CBK and banks can help stem the expectation that the shilling will weaken further or that the shortage in the market will worsen.
Such a perceived expectation has led to customers, including importers, holding on to their dollars for fear that they may not get the foreign currency in time of need.
Trust and confidence are the two key currencies in any financial sector, without which even mega arrangements such as the recent government-backed deal to import fuel on credit, may not do much in taking pressure off the shilling.
Regular consultations and constant engagement with players can help bring in some confidence and relax the cautionary stance that those stockpiling the dollars are taking.