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Nov 23, 2022

David Herbling, Bloomberg News
The Kenyan central bank sits in central Nairobi. , Photographer: Trevor Snapp/Bloomberg
(Bloomberg) — Kenya’s foreign-exchange reserves dropped to the lowest in seven years, breaching the critical level of four months’ import cover. 
Reserves currently stand at $7.04 billion, equivalent to 3.94 months of imports, the central bank said in a statement on Wednesday, as it announced a 50 basis-point hike in its benchmark interest rate to 8.75%. It’s the first time Kenya’s reserves have fallen to less than four months of import cover on a daily basis since October 2015, according to data compiled by Bloomberg.
Reserves fell from $7.4 billion, or 4.19 months of estimated imports, on Sept. 26. While Kenya targets to maintain reserves at a minimum of four months of estimated imports, the central bank said in its statement that current holdings “continue to provide adequate cover and a buffer against any short-term shocks in the foreign-exchange market.” 
The East African Community economic bloc, of which Kenya is a member, targets 4.5 months of import cover.
Kenya’s reserves have been depleting partly because of repayments to bilateral and commercial lenders and central bank intervention to try and slow the shilling’s depreciation against the dollar. The currency has weakened about 8% against the dollar this year.
“The drop in FX reserves is the main concern for the government at the moment,” said REDD Intelligence Senior Credit Research Analyst Mark Bohlund. “It is likely that we could see a more accelerated depreciation of the shilling in coming months.”
Additional inflows are, however, imminent after a successful fourth review of Kenya’s International Monetary Fund program, according to Razia Khan, Standard Chartered Bank’s head of research for Africa and the Middle East. Seasonal foreign exchange from remittances, tourism and horticulture will also boost reserves, she said in an emailed note.
©2022 Bloomberg L.P.
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