The growing shortage of foreign exchange on the interbank market has reportedly forced the Central Bank of Kenya to ask financial institutions to ration dollar purchases by Kenyan companies. The shortage has forced Kenyan companies to seek dollars in alternative markets where the exchange rate is higher than the official government exchange rate.
New limits restricting operations of Kenyan companies
The ongoing shortage of currency in Kenya has reportedly forced the Central Bank of Kenya (CBK) to instruct financial institutions to place limits on the amount of currency businesses and individuals can purchase. According to a trade journal report, some financial institutions have imposed caps as low as $5,000 per day. The limits imposed make it difficult for manufacturers and importers in Kenya to meet their obligations.
The shortage, which reportedly began in mid-2022, suggests that the country’s currency problems are worsening. In October of that year, a CBK statement denied claims by Kenyan Vice President Rigathi Gachagua that the country lacked foreign exchange to import oil. The central bank insisted at the time that all foreign exchange used for oil imports comes from commercial banks.
Despite the CBK’s claim that the country had sufficient foreign exchange reserves, an anonymous executive from a local manufacturing company suggested that the situation is getting worse.
“Now we are looking for dollars. Only half of every six banks that we call daily for dollars will have something for us. Three of the banks will ask us to review later,” the executive said.
The executive added that while some lucky companies have secured up to $50,000, these funds are still far short of what they need.
Declining Kenyan foreign exchange reserves
Meanwhile, the report suggested that major Kenyan companies are now drawing dollars from currency-rich companies such as those in the hotel and aviation industries. Also, instead of using the official exchange rate of 127.39, the companies allegedly use a higher exchange rate of 137 shillings to the dollar.
Some Kenyan commentators have attributed the dollar shortage to strict rules introduced by the CBK that managed illegal currency traders. Commentators insist that the stricter rules have paralyzed the operations of the interbank foreign exchange market.
However, CBK Governor Patrick Njoroge is quoted in a January Reuters report stating that Kenya has adequate reserves. Njoroge made the comments after it was revealed that Kenya’s foreign exchange reserves had fallen below the legal requirement of four months of import coverage.
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