Record Sh24 billion bank forex deposits in January
The new forex guidelines are aimed at improving transparency in the foreign currency market.
Foreign currency deposited in Kenyan banks in January totalled Sh24.2 billion in January — the highest in 13 months — to cushion themselves from the effects of the rapid deterioration of the value of the Kenya shilling, which continues to drop to historic lows each week against the US dollar.
It is the largest amount of forex deposited in bank accounts in a single month since November 2021 when some Sh25 billion was stashed in banks.
Further, it is also a 19 percent increase from the Sh793.3 billion worth of foreign currencies stashed in local bank accounts in January last year underlining the increasing shift by individuals and firms to save in foreign currencies to cushion their savings from inflation.
The shilling lost about nine percent of its value against the US dollar in 2022, forcing wealthy individuals and firms that sought to protect the value of their wealth to stock dollars amid the local currency woes.
This pushed the total amount of foreign currencies such as US dollars, British pounds, and euros stashed in bank accounts to Sh945.3 billion – a historic high – up from Sh921.1 billion in December.
President William Ruto had last month warned individuals and firms who have stashed dollars to release them to the market at the risk of lower prices in the coming weeks.
Dr Ruto’s comments came just weeks ahead of the expected landing of the first cargo of fuel in April bought on credit from three State-owned Gulf oil companies in a bid to ease demand for forex.
“For the people who work numbers, I am giving you free advice that those of you who are hoarding dollars you shortly might go into losses. Therefore, you must do what have to do because this market is going to be very different in a couple of weeks,” he said late last month.
The rapid devaluation of the Kenya shilling follows a fast-growing import bill and foreign debt repayment pressures that has seen a huge increase in demand for forex even as the traditional sources of forex such as new foreign loans, remittances, exports, and tourism failed to keep pace.
The huge import bill is due to high global prices of fuel, food, equipment, machinery, raw materials, pharmaceuticals, crude palm oil, and other primary imports.
Kenya’s trade deficit jumped to Sh1.37 trillion in the first 10 months of 2022 from Sh1.11 trillion in the prior year on the back of disruptions in global supply chains that raised the cost of importing goods.
Kenya’s forex reserves stood at $6.55 billion last week (3.66 months of import cover), which is below the legal threshold of import cover of at least 4 months.
The forex shortage has forced the government to be creative in a bid to alleviate immediate demand for forex especially dollars including buying fuel on credit.
About 33 percent of Kenya’s forex demand is caused by pressures from oil marketers to pay for their cargo.
Kenya handed Abu Dhabi National Oil Company (ADNOC), Saudi Aramco, and Emirates National Oil Company (ENOC) tenders to supply the country with petrol, diesel, and kerosene for 270 days beginning this month.
The first cargo of fuel from the arrangement will arrive next month and will be used in the April-May pricing cycle.
