Central banks in Kenya , Uganda and Tanzania have over the past few months been shoring up their forex reserves through daily purchases to cushion their local currencies from volatility. New statistics show that central banks from the three countries are holding a combined $14 billion in forex reserves — funds used to give the local currency market the needed buffers. In times of shocks and a volatile market, the central bank intervenes to calm the market and stem out the volatility. Data by the Bank of Uganda (BoU) shows that the regulator increased daily purchases of foreign exchange to $4.9 million from $3.1 million as the central bank moved to shore up a reserve position eroded by volatility in global markets and an unscheduled $700 million purchase of fighter jets in 2010. The Central Bank of Kenya (CBK) said in its latest report that forex reserves grew from $5.7 billion (4.12 months of import cover) in July 2013 to $6.2 billion (4.36 months of import cover) at the end of last month. CBK bought dollars' worth at least $305 million in the six months to October 2013 . The Bank of Tanzania (BoT) said in its latest assessment of the economy that forex reserves shrunk to $4.5 billion , lower than the targeted $4.6 billion , in the year ending November as the country's export value dropped by nearly three per cent. "The general trend has been an increase in the reserves during the half year to December 2013 , both in terms of gross reserves as well as its equivalent in months of import cover," said the CBK in a statement last week. "Changes in reserve levels may occasionally be explained purely by changes in the exchange rate between major currencies such as the euro and sterling pound (for which CBK holds part of its reserves) against the dollar. A weakening of these currencies against the dollar will impact negatively on the overall level of reserves," said the CBK. Usually, central banks participate in the open foreign currency market through the purchase of dollars, which effectively has a bearing on the currency. Purchases would weaken the currency as it pushes up demand for the US dollar. READ: Forex reserves up in Uganda , down in Kenya The CBK said the regulator was most active in May when it purchased dollars worth $191 million . In September, it bought $117.6 million . Although Uganda's foreign currency reserves position is much better at $3.25 billion than the $2.4 billion it dipped to in 2008, at only four months of import cover, it is still below the desired six months equivalent of future imports of goods and services. Reserve build-up In November 2013 , the BoU purchased $98.0 million for reserve build-up but sold back $20 million in the same month to support the local unit. Uganda's forex reserves have been growing upward after suffering a drastic decline amid the 2008 global financial crisis, which saw them slip to $2.4 billion . Uganda's gross international reserves rose from $2.6 billion in financial year 2011/12 to $2.9 billion in financial year 2012/13 equivalent to 3.9 months of imports. Stephen Kaboyo the managing director at Alpha Capital explains that the timing of BoU's move was intended to cushion the likely impact on the exchange rate because going by previous trends foreign exchange flows tend to increase in the last quarter the year due to seasonal factors. "My reading from this is that BoU wanted to take full advantage and build reserves in a period when they were certain that the market had decent flows," he said.
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