The dollar reserves have gone down from 6.9 billion U.S. dollars or 4.4 months of import cover at the start of this month to 6.7 billion dollars or 4.3 months of import cover as Treasury cuts expensive short-term borrowing from the domestic market, particularly through the Treasury 91-day, 182-day and 364-day bills.
The reserves had dropped to a low of 6.2 billion dollars in October before starting to rise when CBK raised its benchmark rate to 11.5 percent.
Yields on Treasury bills consequently increased, hitting a high of 23 percent as investors sought to cash in on the high rates.
The high interest on the bills saw inflows from foreign investors surge as CBK accepted most of them, thus, pushing up the dollar reserves.
CBK has, however, cut short-term borrowing after the high interest rates achieved their goal of stabilising the shilling that had weakened against the dollar and other major world international currencies.
The low reserves were partly blamed for the fall of the shilling to 106 dollars against the dollar in September as the Central Bank could not effectively intervene to save the local currency.
In the auction dated Nov. 26, from the 182-day bill, whose interest rate stood at 10 percent from a high of 22 percent, the CBK received 77 bids amounting to 4.6 million dollars representing a subscription of 7.9 percent.
From the 364-day paper, whose yield has plummeted to 11.9 percent, the CBK received 56 bids amounting to 11.4 million dollars, representing a subscription of 19.3 percent for the 184-day and 364-day bills respectively. Treasury accepted all the bids.
The 91-day bill, on the other hand, saw the CBK receive 160 bids amounting to 44 million dollars, representing a subscription of 112 percent. Total bids accepted amounted to 39 million dollars.
With many of those taking part in trading at debt market being foreign investors, the low intake will affect the foreign exchange reserves drastically in coming weeks, according to analysts.
Besides the cash from the debt market, Kenya also relies on inflows the diaspora and tourism to boost its foreign exchange reserves as exports are on the decline. Enditem