Money Markets
Central Bank of Kenya Governor Patrick Njoroge during his inaugural
Press conference at the bank’s headquarters in Nairobi on September 29,
2015. PHOTO | SALATON NJAU
By GEORGE NGIGI, gngigi@ke.nationmedia.com
In Summary
- CBK governor Patrick Njoroge on Tuesday said he had tightened oversight over currency dealers to stamp out indiscipline after noting that movement of the shilling was being driven by release of inaccurate information into the market.
Central Bank of Kenya (CBK) governor Patrick Njoroge
on Tuesday gave the clearest signal yet that commercial banks have been
partly to blame for the exchange rate turbulence that has gripped the
local money markets since the beginning of the year.
Dr Njoroge said he had tightened oversight over currency
dealers to stamp out indiscipline after noting that movement of the
shilling was not purely a factor of demand and supply of the dollar but
was also being driven by release of inaccurate information into the
market.
“Occasionally, we saw the shilling moving not
because of supply and demand but rather because information was not
evenly shared,” the governor said during his inaugural Press briefing
since he assumed office in June.
"You would, for instance, hear that there is a
large demand of $30 million dollars only for the figure to rise to $120
million an hour later and they are acting as if it is at $120 million –
and yet there has been an echo of the $30 million that pushes people in a
certain direction,” he added.
Dr Njoroge also criticised analysts who predicted
the position of the shilling, arguing that some did not have facts to
back their predictions and only canvass projections that advance their
position in the market.
“You have an analyst out there who mentions that he
expects the exchange rate to hit a particular level, which leads to
certain behaviour that ensures fulfilment of the expectations,” the
governor said.
Analysts have more recently been overly cautious when talking to the media in fear of repercussions from the regulator.
The shilling has lost 16.3 per cent to the dollar
since the beginning of the year to trade at the current rate of Sh105 to
the greenback.
The CBK also said it was working with the Treasury towards improved fiscal prudence to support its monetary policy actions.
The Treasury has been pumping cash into the economy
through large infrastructural projects negating the CBK’s efforts to
mop up liquidity in support of the shilling.
The CBK said it expects the shilling to receive
support from increased inflows from tourism, which is expected to
rebound in the last quarter of the year following withdrawal of travel
advisories issued earlier by key source markets such as the US and
Britain.
“The September Monetary Policy Committee (MPC)
survey showed expected recovery in the tourism sector with forward
bookings in major tourist hotels in Nairobi and Mombasa above 50 per
cent on average,” reads a recent MPC statement.
The CBK also noted that importation of consumer
goods had declined, shielding the country from imported inflation. Dr
Njoroge faulted expectations of higher inflation rates, arguing that the
trend has been on the decline with room for further drop.
“The MPC does not believe that the inflation
expectations have fallen even when we have seen it falling so there is
still a lot of hype and bad analysis,” he said.
The CBK’s foreign reserves recently fell below the
statutory four months import cover in the wake of the CBK’s increased
intervention in the open market - selling of dollars to support the
shilling.
The bank, however, maintains that the current import cover
of 3.8 months continues to provide an adequate buffer against short
term shocks.
Besides, Dr Njoroge said, Kenya has at its
disposal a precautionary credit facility from the International
Monetary Fund it can use to shield the shilling from external shocks.
Speculative trading by dealers had been faulted for the plummeting of the shilling in 2011 to lows of Sh107 to the dollar.
CBK was forced to introduce stringent trading
guidelines to curb the habit. In July, the governor issued a circular
reminding the dealers of their trading limits, underlining the belief
that the shilling was under deliberate attack.
Early this month, he summoned chief executives of
commercial banks to persuade them to rein in their dealers in the
currency market.
A rise in interest rates by the United States, however, remains a risk for the shilling.
Dr Njoroge said governors from emerging and
frontier markets will next month, in a conference converged by IMF and
World Bank, be urging the US federal reserve to be aware of the
consequences such a hike would have in their economies
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