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Increased diaspora cash rushes home to protect currency :: Kenya

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Aerial view of Central bank. [Edward Kiplimo/Standard]

Dollars sent home from diaspora have become a crucial buffer for the shilling in the absence of Sh150 billion from the International Monetary Fund facility.

The Central Bank of Kenya said dollar inflows from abroad in the 12 months to last October increased by 40 per cent to Sh262 billion ($2.613 billion) from Sh187 billion ($1.873 billion) in the 12 months to October last year.

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“Inward remittance flows remained resilient and amounted to Sh22 billion ($219 million) in October 2018, which was 18 per cent higher than in October 2017,” CBK said this week’s statistical bulletin.

Standby facility

The apex lender has also replaced a paragraph in the Monetary Policy Committee Press release on the standby facility with a data set on remittances.

According to CBK, North America was the biggest contributor to dollar earnings despite US President Donald Trump’s anti-immigrant policies that were expected to slow down inflows from the US.

At Sh10.9 billion ($109 million) in October, North America contributed half of the dollars received in October followed by Europe, which brought in Sh7 billion ($70 million) while Kenyans in the rest of the world sent home Sh4 billion ($39.5 million).

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“North America, Europe and the rest of the world accounted for 50 per cent, 32 per cent and 18 per cent respectively, of the total remittance in October 2018,” CBK said.

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Huge imports require more dollars, which puts pressure on the local currency. However, if traders need more dollars than available it strengthens at the expense of the shilling.

Currently, the CBK has reserves of up to Sh800 billion ($8 billion), enough to satisfy import trader demand for over five months and a week.

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Such sudden unexpected price pressures usually rock the shilling as was seen when the Kenyan currency inched above 103 units against the greenback recently.

Foreign buyers

CBK, however, deployed a Sh50 billion infrastructure bond, which does not charge interest, in order to attract foreign buyers of Kenyan’s debt into bringing in dollars.

Reuters reported that at 102.4 against the dollar, the local currency was stable due to inflows from offshore investors buying Government debt, meeting increased demand from oil and merchandise importers, traders said.

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