Forex deposits drop after demonetisation

CBK governor Patrick Njoroge

Foreign currency deposits held by commercial banks declined by Sh12.9 billion last November, the second month after Central Bank of Kenya’s (CBK) demonetisation drive ended.

CBK data shows that the deposits fell in November to Sh612.5 billion compared to the previous month when it had reached the year’s peak of Sh625.4 billion. November data on remittances, which form a major boost for the forex deposits, showed a decline to $218.8 million (Sh22.1 billion) compared to the previous month’s $224.3 million (Sh22.7 billion).

The inflows, however, increased in December to $250.3 million (Sh25.3 billion), attributable in part to the fact that many Kenyans abroad send money for the festive period and January school fees requirements. The increase in deposits in October had been associated with conversion of local currency notes to US dollars during the demonetisation of the old Sh1,000 note, indicating the end of the demonetisation could have contributed to the reversal in growth in November.

In an earlier interview Renaldo D’Souza said that some people were changing the local currency into dollars due to its liquidity and easy availability.“In the run up to the demonetisation deadline of 30th September, we saw a weakening of the shilling probably as a result of increased demand for the US dollar.

This is also visible from the data on commercial bank deposits of foreign currency in the period under review. That is holders of the old notes could have converted the local currency for the liquid and easily available US dollar,” said Mr D’Souza.

The decline in foreign currency deposits also came in the fifth month after an amnesty to repatriate funds stashed abroad came to an end. The amnesty had been extended to end of last June after ending in the same month in the previous year. Overall, there was an upsurge in the amount of foreign currency that Kenyans banked during the year.

Source: Business Daily Africa