By Charles Mwaniki, NAIROBI Kenya
The price of buying dollars in Kenya banking halls and forex bureaus has crossed a record Sh145 per unit, widening the spread between the official and open market rates, and creating a black market for the US currency due to a shortage.
A spot-check on Wednesday
across multiple banks showed that they were selling dollars to customers at
between Sh140.55 and Sh144.50 while buying the greenback at between 128.20 and
Sh131.40 per unit.
Consumers are buying dollars
at between Sh141 and Sh146 per unit in forex bureaus, who are getting the US
currency at between Sh135 and Sh138.
These trades are moving
further from the Central Bank of Kenya (CBK) average rates of Sh129.52 per
unit, widening the gap between the official and open market trading price to
Sh16 from less than Sh5 a year ago.
The widening spread has
followed the shortage of dollars and the near-collapse of the
interbank forex market, where foreign currency is traded among lenders and
helped set an exchange rate that is closer to the CBK average.
The inability of banks to
compare and compete on prices when selling to each other has left buyers at the
mercy of sellers, which explains the widening variance in the dollar exchange
rate.
Some are also being forced to
buy dollars from their clients—depositors hold in excess of Sh920 billion worth
of forex in their accounts—offering customers the power to set prices.
A bank executive said that
industry players have now opened discussions among themselves and with the
authorities, including the CBK, to resolve the dollar supply problem.
The dollar shortage has become
an issue of national concern due to the secondary effect of rising consumer
prices and potential supply hitches of key imported commodities.
“There are very good
discussions in terms of how the interbank market should come back. Industry
players are closely involved in these discussions because it’s owned by the
banks,” said the executive who sought anonymity.
“We need it to come back
because we want a market where there is proper price discovery. Right now,
price discovery is with the clients who are holding the dollars, and that
should not be the case.”
A black market is emerging in
the wake of banks buying the dollars at less than Sh130 and selling the US
currency at over Sh140.
Top firms have started trading
in dollars among themselves, with hotels and aviation firms attracting interest
from those in need of hard currency.
Those with dollars are finding
they can get a better rate by bypassing banks and selling directly to
individuals and firms in need.
The firms are buying the US
currency at lower rates than those quoted by the banks.
This is creating a parallel
shadowy market, which is in breach of the law and has the potential to trigger
a range of economic problems including discouraging foreign direct investment
(FDI), encouraging rent-seeking and reducing the interbank FX market.
A parallel exchange rate
market develops in such circumstances and when the spread between the official
and parallel rates is both substantial and sustained, says an International
Monetary Fund (IMF) official working paper.
The central bank has in the
past rebuked Stanbic Bank Kenya after a research note issued by its parent,
South Africa’s Standard Bank, said a parallel exchange rate was emerging in
Kenya.
This forced Stanbic Bank Kenya
to issue a public statement distancing itself from the research note, which
said that “two FX rates have been developing in the market.”
The Standard Bank note said
that “due to this divergence in screen and FX interbank rates, admittedly price
discovery has been very cumbersome.”
The parallel rates are well
captured by the exchange rate the energy regulator has been using to calculate
the monthly caps on fuel prices.
The Energy and Petroleum
Regulatory Authority (Epra) data show the exchange rate that oil marketers—who
account for about a third of dollar purchases—used to buy oil was nearly
similar to the CBK official rate until May last year.
The spread between the
official and the oil marketers’ rate was Sh0.16 in May last year before it
started widening from July to reach Sh9.65 this month.
The dollar shortage is the
product of rising dollar demand being driven by increased shipments of raw
materials and equipment as inflows from traditional sources such as
agricultural exports and tourism fail to keep up with demand.
Analysts have also blamed the
CBK for the dollar crisis, saying the regulator introduced tough rules on the
foreign exchange interbank market, crippling market operations.
Through the interbank forex
market, banks are able to trade hard currency with each other and at rates that
determine the official or spot rate.
A muted interbank market has,
for instance, forced banks to seek dollars from companies and individuals,
forcing retail transactions to happen at weaker rates.
“Liquidity in the interbank FX
market has dried up and shifted to the bank-client market where forex
transactions are executed at a much-depreciated rate,” the IMF observed in
December.
As spreads between the
interbank and market rate widen, banks have shied away from selling dollars to
each other on the increased margins on clients' business.
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