Why CBK is shopping 400 million dollars from the local banks
The Central bank of Kenya (CBK) has announced its plans to buy US dollars ($) from the commercial banks in efforts to increase its foreign exchange reserves above normal. CBK intends to purchase USD 100 million each month from March to June 2020, totaling to Ksh.40.4 billion ($400 million). According to the monetary authority, purchasing the US dollars would bolster its preparedness to deal with the heightened global volatility and uncertainties that may arise as a result of the development unfolding in the global currency markets and economies.
CBK’s Financial Markets Director William Nyagaka, while calling on the commercial banks interested in selling the dollar to engage the CBK, assured them that the purchases of the US dollars will be conducted in a manner that will ensure no unintended volatility and instabilities in the foreign exchange market are introduced. Mr. Nyagaka guaranteed the commercial banks that the purchase will be conducted at the prevailing rates. Kenya Shillings have sharply dropped against the US dollar, currently trading at 1KES to 0.0097 United States Dollar according to the Google Currency Exchange.
Though the Central Bank of Kenya did not state the exact uncertainties that they forecast, the move to purchase the dollar above the normal reserves may have been triggered by the negative impacts that the coronavirus may cause on the world’s economy. Financial experts have warned that the virus spread will spawn costly damages to the global economy if no urgent measures are taken to contain the virus spread. However, steps that have been taken have resulted in a damaged economy and financial market.
Traders around the world are dumping riskier assets and scampering to purchase safe-haven currencies in the global foreign markets, a signal that the exchange will not be stable this year. Organization for Economic Co-operation and Development (OECD) has issued heads-up that global growth could fall to its slowest growth rate. Governments around the world are making all necessary steps are taken to protect financial and monetary stability.
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