The shilling will be further devalued on the day the new forex code goes into effect
Friday March 24, 2023
The Kenyan shilling continued to fall on the day the banking sector regulator issued a new foreign exchange code that promises severe penalties for those caught manipulating the foreign exchange market.
Bank managers said so Business Daily Confident that while they had expected a new code to be issued in due course – and even participated in its preparation through working groups – the move by the Central Bank of Kenya (CBK) to issue and enforce it came, before she came her entries ended on the same.
The surprise issuance of the code, they said, dampened dollar supply in the interbank market, which helped support the shilling’s recovery on Monday.
Rates quoted for dollar buyers on bank floors Thursday ranged from Sh136 to Sh143 and from Sh127 to Sh128.60 for those who deposit the greenback in banks.
Read: Schilling hits a new record low against the dollar
Banks sold dollars between Sh136 and Sh142 on Wednesday, down from between Sh140.55 and Sh144.50 a week earlier.
The CBK official rate averaged Sh130.99 per dollar on Thursday after falling from Sh130.61 on Wednesday.
“There were some flows on Thursday but generally lower than Wednesday. We saw some caution after the regulator stamped their authority,” said one trader Business Daily.
The CBK has kept a close eye on the forex market after some players have tried to manipulate the market for selfish gain in the past.
But this, in turn, has been cited as one of the reasons banks have been reluctant to trade dollars with each other for fear of clashing with the regulator if prices exceed the expected range.
The CBK said in a statement on Wednesday that its code is modeled after the FX Global Code, which currently has 51 signatories including three African countries – South Africa, Mauritius and Angola – but added that it has been adapted accordingly for the Kenyan context .
The banking regulator said the code will ensure the integrity and effective functioning of the foreign exchange market in Kenya.
It prohibits banks from engaging in trading practices, setting prices, or entering into transactions with the intention of manipulating price movements or disrupting the functioning of the market.
The code also requires banks to promptly conduct a self-assessment and report to the CBK on their level of compliance with the new code by April 30, 2023, and then by June 30, to submit a detailed compliance implementation plan to be prepared by approved by their boards. 2023
For non-compliance with the Code, banks face “administrative measures including fines under the Banking Act”.
Read: year the shilling passed the biggest test to date
The code was issued at a time of heightened attention in the local currency market after the shilling hit new lows of 145 against the greenback in the retail market and surpassed the 130 mark on the officially printed rate amid dollar supply restrictions that have threatened imports economic inputs.
The growing economic threat posed by the foreign exchange issue prompted the government to negotiate a deal with Saudi Arabia and the United Arab Emirates to allow fuel imports on credit, which is likely to reduce oil marketers’ monthly demand of about $500 million from the market .
The growing divergence between the market rate and official rates has also raised fears of the emergence of a black market for the dollar.
Meanwhile, President William Ruto said on Wednesday that the government had held talks with sector actors through the CBK to restart the interbank foreign exchange market, a key element in ensuring a steady supply of dollars to the economy.
The President said he expected market conditions to improve over the next two weeks and alerted those hoarding dollars to expect losses immediately, signaling the government expects the exchange rate to improve with the improving Supply of hard currencies will decrease currency.
By the end of December, depositors held Sh921 billion worth of dollars in their accounts.