IMF To Probe Kenya’s US Dollar Shortage Crisis

IMF To Probe Kenya’s US Dollar Shortage Crisis
IMF To Probe Kenya’s US Dollar Shortage Crisis

The International Monetary Fund (IMF) says it is monitoring challenges in accessing the U.S dollar in Kenya with a view of determining reasons behind the crisis.

According to the IMF, the availability of dollars in the forex interbank market has dried up, forcing banks to seek dollars from clients, resulting in transactions priced at rates further from the official exchange rate.

“Liquidity in the interbank FX (forex) market has dried up and shifted to the bank-client market where forex transactions are executed at a more depreciated rate. Banks report delays in meeting some client orders, and bilateral transactions between some non-financial corporates,” noted the IMF.

“Staff is closely monitoring the situation with a view to determining the main factors behind market distortions.”

Apart from a strengthened U.S dollar in the year to date, the Central Bank of Kenya (CBK) has associated dollar shortages to greater FX demands after a spike in global commodity prices which has bloated the country’s import bill.

While emphasizing that it maintains a stable and market-driven exchange rate, the CBK is set to issue new forex trading rules with the view of rejuvenating the inter-bank dollar market to smoothen the year-long crisis.

“To address the challenges of pricing and liquidity, we will issue additional guidelines to support the smooth, fair and efficient functioning of the foreign exchange market,” the CBK stated.

“The leading principles include practices on execution, governance and risk management and compliance which foster a robust, fair, open liquid and appropriately transparent market. These measures, supported by mutually consistent monetary, exchange rate and fiscal policies, are essential to maintain competitiveness, revitalize the interbank FX market, protect FX reserves and ensure continued financial stability. Any FX interventions by the CBK will be limited to responding to excessive market volatility.”

IMF’s views on the dollar shortage crisis comes even as local market participants including analysts trace the dollar shortage crisis to price mismatches as FX pricing largely swings off the official rate as published by the CBK.

Analysts at EFG Hermes have for instance called for the devaluation of the shilling aligning it to the ‘real market rate.’

The sentiments come as the Kenya Shilling continues to steadily fall against the U.S dollar this year with the local unit having crossed the Ksh.123 mark against the green buck last week.

By Kepha Muiruri

Source-https://citizen.digital/

 

IMF To Probe Kenya’s US Dollar Shortage Crisis

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