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CBK dismisses government remarks that the country is in shortage of Forex Exchange Reserves

CBK dismisses government remarks made by DP Rigathi Gachagua that the country is in shortage of Forex Exchange Reserves.

Deputy President Rigathi Gachagua’s remarks that state capture had hampered their operations, particularly in managing the nation’s foreign exchange reserves have been dismissed by the Central Bank of Kenya (CBK).

On October 2, CBK issued a statement correcting DP Rigathi Gachagua and adamantly stating that it does not manage foreign exchange for commercial banks.

The financial watchdog highlighted that it exclusively regulates foreign exchange for the purposes of the national government and its activities.

Forex exchange involves trading of one currency to another, like the Kenya shilling against the US dollar. It is how individuals, companies, and central banks convert one currency into another.

Gachagua criticized some powerful political figures for seizing control of banks and forcing oil importers to pay surcharges while purchasing oil as a result of high foreign exchange rates.

He claimed that this had an impact on petrol prices nationwide.

However, CBK pointed out in their statement that commercial banks, not CBK, are where oil importers get their necessary foreign exchange.

“First, following the complete liberalization of the foreign exchange market in the 1990s, all foreign exchange for private transactions is obtained from commercial banks,” their statement read in part.

“CBK does not supply foreign exchange for transactions other than for the National Government (i.e., government’s own imports or debt service payments) or CBK’s operations. Oil importers, therefore, obtain their requisite foreign exchange from the commercial banks and not CBK,” CBK added.

The Central Bank further corrected Gachagua, noting that its cover in the country remains adequate in the country. This is according to the laws that stipulate their operations in the country.

“The Central Bank of Kenya Act (Section 26) requires that CBK “at all times use its best endeavors to maintain a reserve of external assets at an aggregate amount of not less than the value of four months’ imports as recorded and averaged for the last three preceding years.” This stood at 4.64 months of imports as of September 26, 2022,” CBK added.

CBK, which Governor Patrick Njoroge heads, added that it provides adequate cover and buffer against shocks in the foreign exchange market.

Gachagua, in his interview on Citizen TV, noted that the Kenya Kwanza administration was keen to address state capture, which had affected fuel prices in the country. 

“Why there is forex exchange problem is because of state capture. There was a lot of interest in banks where very senior government people own certain banks and they got involved in this forex business. Central Bank so no longer in charge,” Gachagua stated.

In June, oil marketers had raised concerns over making losses despite being compensated by the government through the subsidy program.

Some oil marketers claimed in May, the Energy and Regulatory Authority’s (EPRA) compensation was based on the official printed dollar exchange rate of up to Ksh116.24 per litre as opposed to the Ksh118.34 per unit that marketers purchased dollars from the banks, exposing them to losses of up to Ksh2.10 per litre.

This is due to the fact that oil importers rely on dollars to pay for their supplies, and parallel exchange rates exposed them to losses that resulted in a lack of fuel and an increase in price.

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