Strong Forex Reserves?: Expert Explains Why CBK Holds KSh 1.3t Worth of US Dollars

• The Central Bank of Kenya (CBK) reported strong foreign exchange reserves and a stable shilling in the last week of May 2025
• President William Ruto applauded CBK for the measures taken in stabilising the exchange rate
• However, market analyst at FXPesa, Rufas Kamau, explained that strong forex reserves do not fix the trade balance
• Speaking exclusively to TUKO.co.ke, geopolitical economist Ally Khan Satchu opined that most of the reserves are from external borrowing that could hurt taxpayers in repayment

Wycliffe Musalia has over six years of experience in financial, business, technology, climate, and health reporting, providing deep insights into Kenyan and global economic trends. He currently works as a business editor at TUKO.co.ke.

The Central Bank of Kenya (CBK) has posted strong foreign currency reserves in May 2025.

The regulator reported $10.47 billion (KSh 1.4 trillion) in foreign currency reserves in the last week of May.

With strong reserves, the regulator maintained the stability of Kenya shilling in the exchange market, trading at KSh 129.26 per US dollar.

Why CBK holds strong forex reserves

In an exclusive interview with TUKO.co.ke, geopolitical economist Ally Khan Satchu noted that although the reserves stabilise the shilling, much comes from external borrowing, which could hurt the economy.

"Forex reserves are a buffer and help stabilise the domestic currency. However, a lot of the reserves are driven by the external borrowing book. Finally, the skew of those reserves is essentially in US dollars increasingly which looks as an oversized and incorrect bet," explained Satchu.

A market analyst at FXPesa explained that CBK uses the foreign currency reserves to facilitate the actual buying of crucial imports.

He noted that the reserves fill the gap existing in facilitating import trade, however, it does not fix Kenya's trade balance between imports and exports.

"Fixing the trade balance gap does not imply increasing exports to match imports... in this case, I am talking about having sufficient foreign currency liquidity to facilitate the actual buying of crucial imports.

"Think about it this way, for us to import anything, we need foreign currency. If there's a shortage, like we experienced 2 years ago, everyone starts hunting for and hoarding dollars, leading to a slide of the shilling. This is the gap that the reserves fill. The trade balance notwithstanding," Rufas Kamau explained in a post on his X account.

In its report, CBK noted that the KSh 1.4 trillion worth of dollars is enough to cover more than 4 months of imports.

Meanwhile, Kenya shilling is projected to appreciate by 3% in 2025, beating other regional and African currencies.

A report by the African Development Bank (AfDB) showed that other currencies in the continent, other than Kenya shilling and Moroccan dirham, will depreciate during the same period under review.

What Ruto said about Kenya shilling

This saw President William Ruto applaud the Central Bank of Kenya for maintaining the stability of the shilling in the forex market.

Ruto noted that for the first time since the shilling depreciation to KSh 160 per US dollar, the exchange rate was stable.

The head of state also said the measures employed by the banking regulator have also helped stabilise inflation, keeping it below the mid-point of 5%.

He also acknowledged that maintaining a strong foreign currency reserve of over KSh 1.3 trillion worth of dollars is not an easy task to achieve.

Proofreading by Mercy Nyambura, copy editor at TUKO.co.ke.

Source: TUKO.co.ke