September 29, 2015 / 9:45 AM / 3 years ago

UPDATE 1-Kenya working with Treasury on fiscal position, has ample FX reserves

(Adds governor comment on FX reserves, currency)

By Duncan Miriri

NAIROBI, Sept 29 (Reuters) - Kenya’s central bank governor said on Tuesday the bank was working with the Treasury department to strengthen the country’s fiscal position, in a financial year when the budget deficit is forecast to rise to 8.7 percent of gross domestic product.

Patrick Njoroge also said the bank was working to minimise volatility in the exchange rate and had enough foreign currency reserves, which have dipped below four months of import cover, the level it usually seeks to maintain.

“We have ample reserves in case of any foreseeable shocks,” the governor told his first news conference since taking office in late June, adding that a $688 million stand-by facility with the International Monetary Fund provided an additional cushion.

The central bank’s weekly bulletin, published on Sept. 25, put foreign reserves at $6.180 billion, equivalent to 3.93 months import cover. It fell from $6.195 billion the previous week and $6.658 billion at the start of July.

The governor said there had to be a strengthening of Kenya’s fiscal position and he was working with the Treasury on this issue although he did not give details. In July, he had said “fiscal prudence” was needed to restore macro stability.

Kenya’s budget deficit has climbed from a forecast 7.8 percent of GDP in fiscal 2014/15. The financial year starts on July 1.

The shilling has weakened about 16.5 percent against the dollar this year, but Njoroge said the central bank did not have a target for shilling exchange rate and was committed to a flexible exchange rate.

Kenyan government debt yields have also been rising in recent weeks. Njoroge said the increase in short-term debt was in line with the bank’s tighter monetary policy.

The central bank has raised its rates by 300 basis points since June to 11.50 percent. (Reporting by Duncan Miriri; Writing by Drazen Jorgic; Editing by Edmund Blair and Dominic Evans)

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