CBK calls meeting as shilling hurtles to 100 against dollar

Central Bank of Kenya building in Nairobi on June 2, 2014. The bank has called an early meeting of its advisory committee in the wake of the rapid slide of the Kenyan shilling against the dollar. PHOTO | SALATON NJAU 

In Summary

• The CBK, which has come under fire over the worrying slide of the shilling, has also cautioned forex dealers over speculative behaviour.
• The developments prompted the CBK to raise the rate at which it lends to commercial banks by 7 percentage points to 18 per cent in the last half of 2011 to bring about macro-economic stability.
• Currently, the CBK remains without a head. The appointment of a new boss is still pending, following the exit of Prof Ndung’u.

By JOSHUA MASINDE
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The Central Bank of Kenya has called an early meeting of its advisory committee in the wake of the rapid slide of the Kenyan shilling against the dollar.

Departing from its bi-monthly Monetary Policy Committee meeting, the regulator will now host the team on June 9 as the free-falling local unit nears 100 to the greenback.

At the close of trading yesterday, the shilling exchanged at 98.20/98.40 to the dollar.

“The reason (for the meeting) would be to discuss the shilling. Now, I think, it’s time to adopt a tightening stance to stop further weakening,” said Equatorial Commercial Bank head of treasury Benard Omenda.

SPECULATIVE BEHAVIOUR

The CBK, which has come under fire over the worrying slide of the shilling, has also cautioned forex dealers over speculative behaviour. It believes this could be causing jitters in the market, hence exerting more pressure on the shilling, which has this year alone, weakened by nearly 8 per cent.

The current situation is reminiscent of the second half of 2011 when growing import pressure amid increased borrowing in the domestic market put pressure on the unit, pushing it to a historical low of 107-units against the dollar.

Inflation, on the other hand, peaked at 19.72 per cent towards the end of 2011.

The developments prompted the CBK to raise the rate at which it lends to commercial banks by 7 percentage points to 18 per cent in the last half of 2011 to bring about macro-economic stability.

The MPC meeting, which will now be monthly, rekindles memories of 2011/12, when CBK, faced with a similar problem, resorted to monthly meetings.

The CBK held its last meeting on May 6, without a governor in office, and when the benchmark lending rate was retained at 8.5 per cent. Prof Njuguna Ndung’u, the former governor, chaired his last MPC meeting on February 26, before bowing out of the CBK on March 3.

Currently, the CBK remains without a head. The appointment of a new boss is still pending, following the exit of Prof Ndung’u.

DOES NOT AUGUR WELL

The delay in naming a new governor, according to some experts, does not augur well for the markets. Other positions that are yet to be filled include deputy governor and chairman of the CBK.

“These positions need to be filled to restore calm and confidence to the markets. The positions are very critical in determining monetary policy as well as directing our economic policies and thus delay in naming them has created uncertainty in the markets,” said Mr Fred Ikana, a director at Centsavvy Investments.