Central Bank directs commercial banks to ration dollars following a shortage 

Central Bank directs commercial banks to ration dollars following a shortage of the currency making it difficult for the importers.

Commercial banks are running out of dollars on some days following a shortage of the US currency, making it difficult for manufacturers and general goods importers to meet their obligations.

After a shortage of currency and a rush to protect reserves, the Central Bank of Kenya (CBK) has ordered commercial banks to restrict the number of dollars they can lend.

Many currency merchants and importers claim that banks have placed a daily limit on dollar purchases of as little as $5,000 because businesses are finding it difficult to get enough foreign currency to meet their supply needs.

Due to the shortage, which strains relationships with suppliers and their capacity to negotiate favorable rates, industrialists have been compelled to start seeking dollars daily from a number of lenders to meet their monthly hard currency needs.

Having banks, including the top tier lenders, run out of the greenback suggests an escalation of the currency woes that started the mid-last year with lenders rationing scarce dollars.

“We are now scavenging for dollars. Only half of every six banks we call daily for dollars will have something for us. Three of the banks will ask us to check later,” said a top executive of a manufacturing firm who sought anonymity for fear of reprisals from the Central Bank of Kenya (CBK).

“What is available at banks is between $5,000 and $10,000. One will be fortunate to get $20,000 and extremely lucky to get $50,000 from a single bank. This is crazy for a business that requires $1 million monthly for supplies and we are getting each dollar at Sh137,” he added.

Importers say they cannot access the dollar at the official buy rate of Sh127.39, forcing them to buy at a rate of Sh137 or higher.

Top firms have started trading in dollars among themselves, with hotels and aviation firms attracting interest from those in need of hard currency.

This is establishing a parallel, illegal shadow market that could lead to a number of economic issues, such as deterring foreign direct investment (FDI), promoting rent-seeking, and shrinking the interbank FX market.

Some lenders acknowledged the dollar purchase caps but chose not to publicly declare it for fear of reprisals from the CBK.

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Industry leaders claim that their capacity to make timely payments to foreign suppliers was significantly impacted by their limited access to sufficient hard currency.

The industrialists’ organization claimed that the dollar crisis has harmed relationships with suppliers at a time when global competition for raw materials has increased as a result of rising demand and persistent supply chain restrictions.

The shortage is the product of rising dollar demand being driven by increased shipments of raw materials and equipment in the wake of the recovering economy.

There was no immediate comment from the CBK on the shortage of dollars.

However, Central Bank has repeatedly maintained that Kenya has sufficient foreign currency to meet demand, brushing off manufacturers who continue to warn about the shortage of dollars.

The executives say some Kenyan firms have started sourcing dollars from neighbouring countries, especially Tanzania.

Analysts have blamed the CBK for the dollar crisis, saying the regulator introduced tough rules on the foreign exchange interbank market, crippling market operations.

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