Njoroge receives praises for rescuing economy

There would not have been a better way for Central Bank of Kenya (CBK) chief Patrick Njoroge to cap a year in office than by being awarded the Africa 2016 Central Bank Governor of the Year award for “cleaning up” the financial sector in the country.

In his true characteristic fashion of disregarding opulence, the governor chose to celebrate his award at the Bridges Children’s home and then with youth in Mathare for the rest of the week to commemorate the 50th anniversary of CBK.

After a year in office, analysts – who have previously said the governor’s decisions have been harsh and have a number of times created panic in the economy – have heaped praise on Dr Njoroge, saying his leadership has instilled discipline among financial institutions in Kenya, tamed inflation and stabilised the shilling in a tough operating environment.

“On a broader picture he has brought with him professionalism that other areas in the public service should emulate. He has been a true dedicated public servant and if his example should have been copied, Kenya would be miles ahead,” public policy and finance analyst Robert Shaw told the Sunday Nation.

At the time of his hiring, opinion was divided on whether it was a good decision to hand over one of Kenya’s most important institutions to a man who is seemingly risk averse judging by his lack of personal investments and family to his name at 54 years.

But from government to banks, from politicians to businesses and the regular mwananchi, there is virtually no one who has not felt the weight of the man referred to as “Mr Inflation” due to his obsession with the cost of living within financial circles.

During his vetting by Parliament, he told MPs that his plan for the country was simple, “target inflation in order to help reduce commercial bank lending rates”.

Figures released on Wednesday by the Kenya National Bureau of Statistics show Kenya’s inflation stood at 5.27 per cent down from 6.45 per cent in March and 1.6 percentage points lower than the 6.9 per cent it was when Dr Njoroge was hired.

The country’s inflation is also at its lowest since June 2013 when it stood at 4.91 per cent.

And although the Kenya shilling closed trading on Friday at Sh101.01 to the US Dollar, which is still weaker than the Sh97.5 it was when President Kenyatta nominated the then International Monetary Fund advisor to head CBK, the regulator in its weekly bulletin said demand and supply had evened out.

GOOD CALL

It is a stark difference from the better part of last year when the fall of the local currency seemed uncontrollable, depreciating by 12 per cent from January to November as the effects of a strengthening US currency were felt across global financial markets.

The regulator attributes this to a narrower current account deficit from a lower import bill for petroleum products, a recovery in tourism, tea and horticulture exports and remittances from Kenyans abroad.

The deficit is currently 6.8 per cent of GDP down from 8.5 per cent last year.

Experts, however, say tight liquidity in the money market and CBK’s decisive intervention have greatly helped to stabilise the shilling.

“The strengthening shilling while most African currencies have been falling like a stone is testament to how the market’s confidence in the Central Bank is sky-high. The markets are convinced in the governor’s inflation busting credentials and the shilling is a scientific barometer of how highly regarded CBK is,” Mr Aly Khan Satchu, the Chief Executive Rich Management, says.

“As you recall, one of the first things the CBK governor did to save the local currency was to engineer a liquidity crunch which led to a sharp increase in interest rates, which in turn increased the demand for the shilling,” Mr Bernard Omenda, a financial markets expert, adds.

This harsh decision was made during the very first monetary Policy Committee meeting that was chaired by the governor and in which the Kenya Banks’ Reference Rate was increased to 9.87 from 8.54 per cent. 

In raising the cost of credit, Dr Njoroge had hoped that consumption, especially of imported goods and services, will slow down and help tame the current account imbalance that was largely seen as one of the main causes of the shilling’s woes.

PROFESSIONAL MAN

It was also the first time in two years that this reference rate, which is used by banks as a benchmark to set their interest rates, was being revised upwards and as expected the cost of borrowing money almost doubled.

“When one looks at it they can say that there was a margin of overreaction but on the flip side when you are a governor it is good to be decisive in order to boost confidence in the financial sector because the economy and the livelihoods of Kenyans depends on it,” Mr Shaw says.

In just three months after Dr Njoroge was appointed, banks began to feel the heat leading to two – Dubai Bank and Imperial Bank – being placed under receivership and a third one – Chase bank – was a month ago temporarily closed after an audit revealed it had cooked its financial books.

It was no longer business as usual and soon the governor went after the government denying it an overdraft after it defaulted on two loan payments worth Sh1.1 billion, leading to a cash crunch with severe ripple effects. 

“We want all actors and institutions in the financial sector to respect and follow market discipline,” Dr Njoroge said.

His tough stance is sure enough paying dividends.