Njoroge says shilling’s fall now beyond CBK control

Central Bank of Kenya governor Patrick Njoroge (centre) during the Senate’s Finance, Commerce and Budget Committee hearing on the falling shilling at County Hall in Nairobi on July 27, 2015. PHOTO | DIANA NGILA

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Central Bank of Kenya governor Patrick Njoroge on Monday said he was cautiously optimistic that the shilling would soon regain stability after persistent volatility that has seen it lose more than 10 per cent of its value to factors he has no control over.

Dr Njoroge told the Senate committee on Finance, Commerce and Budget that the CBK has no target for exchange rate – meaning there is no red line to be crossed in the ongoing battle to stabilise the Kenyan currency.

He said last weekend’s visit by US President Barack Obama and the world’s top entrepreneurs attending the Global Entrepreneurship Summit was “very good and positive for foreign and local investors.”

“There is more confidence and people are placing positive bets. There is foreign currency coming into the market. Hotels were full not just for the visit, but there has been a spillover effect. We couldn’t have done a better job advertising the country to the world,”  he said.

Dr Njoroge said positive confidence arising from the summit was not just in the tourism sector, but across the entire economy.

“We are cautiously optimistic. I use this deliberately because we have brought down volatility in exchange rate. The markets were quiet last week,” he said.

The governor said the CBK’s focus would stay on stemming volatility in the exchange rate even as it stays alive to the risks and problems that would come targeting a rate.

“We definitely want to be sure that if there is any movement, it is smooth and gradual,” he said adding that the large import bill, the shrinking exports, tourism slump, the huge public debt and other external factors were to blame for the shilling’s troubles.

“The total debt stood at 51 per cent at end of June. You may wonder what it will be at end of June next year. Whereas we are the financial advisors of government in terms of borrowing, we have no role after we have given our recommendations,” Dr Njoroge said.

Measures taken by the Monetary Policy Committee (MPC) on July 7 have had some effects in taming the shilling’s fall against the US dollar and other major world currencies, he said, adding that a tightening of liquidity was beginning to show.

“We are mopping up liquidity and the market is very tight on the shilling side,” he said.

The measures are expected to provide some relief, at least temporarily, as the regulator takes other measures to support the fiscal environment and provide strong confidence for the private sector.

The committee chaired by Mandera Senator Billow Kerrow sought to know the measures that the bank had put in place to reverse the shilling’s decline.

“We have seen that despite the measures the MPC took aimed at stabilising the shilling, the situation has gotten worse. This will have a major impact on the cost of living given the fact that our import bill is huge and growing,” Mr Kerrow said.

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