The value of dollar deposits in commercial banks rose by Ksh61 billion ($415 million) in July to a new record high of Ksh1.246 trillion ($8.47 billion), continuing the sharp expansion in value seen this year on a weakening shilling.
Financial data published by the National Treasury in its Draft 2023 Budget Review and Outlook Paper shows that the deposits exceeded the level seen a year earlier by 37.8 percent, double the growth rate seen in the year to July 2022.
Economists have largely attributed the sharp expansion in value to the weakening of the shilling against the dollar—by 18 percent in the past year—which has meant that hard currency holdings are valued more in shilling terms even if the actual quantity has not gone up.
The Ksh61 billion appreciation in the value of dollar deposits followed a Ksh93 billion ($632.7 million) jump in June. Since the beginning of the year, these holdings have grown in value by Ksh325.3 billion, the equivalent of $2.2 billion.
Corporates account for about 70 percent of Kenya’s dollar deposits, with the rest in the hands of households, indicating that the bulk is not held for speculative purposes.
Bulk buyers have recently sought a buffer of dollars following a shortage of the US currency in the first quarter of the year due to hitches in the interbank forex market that had become dormant in recent years.
Those hedging are also covering against forex losses should they need to buy dollars down the road, taking into account the continued depreciation of the shilling.
An improvement in the current account—which measures the gap between the country’s forex inflows and outflows—has also helped pad the dollar deposits this year.
The Treasury data shows that the current account balance narrowed by 20.6 percent to $4.63 billion (4.4 percent of GDP) in June 2023 from $5.83 billion (5.1 percent of GDP) in June 2022.
This narrowing, the Treasury said, is as a result of lower imports, higher exports of goods and services and increased diaspora remittances.
In July, remittances hit a record monthly high of $378.1 million (Ksh55.6 billion), before easing to $354.3 million (Ksh52.1 billion) in August.
The cumulative inflows for the 12 months to August 2023 stood at $4.12 billion, an increase of 3.2 percent compared to the $3.99 billion remitted in a similar period in 2022.