When local manufacturers last June raised concerns about the effects of dollar shortages on their operations, the Central Bank of Kenya (CBK) was quick to dismiss them, insisting there was sufficient foreign currency in the country to meet demand.
The banking regulator publicly took the same position in a press statement in October while reacting to claims made by Deputy President Rigathi Gachagua that the country lacked enough foreign exchange reserves to enable it to import oil.
The CBK pointed to the fact that the import cover of the previous stood at 4.64 months, which was then above the desired 4.5 months cushion recommended by the seven-nation East African Community bloc.
The reserves have since fallen to 3.84 months of import cover, the lowest since April 4, 2013, suggesting a deterioration of the hard currency problems that began last year. Currency traders and importers say that banks are rationing dollars, with daily purchases capped at as low as $5,0000.
Forex market analysts blame the dollar crisis on tough rules imposed on the interbank market which require that a bank’s foreign exchange exposure must not exceed 10 percent of its core capital.
Enforcement of the prudential guidelines introduced to ensure order in the forex business has ended up squeezing liquidity in the interbank FX market, forcing banks to seek hard currency from companies and individuals.
The market grievances about these guidelines and the difficulties manufacturers and importers face getting dollars to meet their supply chain obligations should prompt the CBK to review them.