CBK Pumps Dollars Into Market to Help Shilling

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The Central Bank of Kenya was yesterday forced to pump into the market more dollars to prop up the shilling after weakening to hit 107 on Monday.

The move provided a reprieve for the local currency which closed at 105.5 versus the greenback.

A source privy to the forex supply from the regulator said anonymously that close to $30 million was introduced into the system as CBK Governor Patrick Njoroge met banks chief executives to deliberate on the weakening local unit.

The meeting, which is said to have been brief, questioned the fundamentals behind the slide with focus on information spreading out from the lenders to the public.

“We talked about the code of conduct for the forex dealers and whether the rate at which the shilling was losing ground was driven by the market fundamentals. Data integrity was also a concern and we deliberated on the need for a free flow of official comments from authoritative sources on the state of the local currency,” one of the bank CEOs who attended the meeting told the Nation on phone.

The move, which follows similar measures, may only last a short while as the country grapples with the huge trade imbalance, the low yield from the short term T-bills and a host of other micro economic factors.

CBK’s move to dig deeper into its foreign exchange reserves may have been founded on the comfort that the $433 million precautionary facility was nearing its disbursement with the letter of intent already drawn last week.

The IMF board meeting is just a week away.

The precautionary facility is, however, ‘shock defined,’ meaning Kenya may have to demonstrate a balance of payment shock to justify its usage.

The facility will also be a small fraction compared to about $1 billion that the country’s financial regular has spent since January in trying to cushion the shilling from losing more rapidly to the greenback since January .

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