House plans to probe weak Kenya shilling

MPs on Friday filed a notice of motion to investigate the falling value of the shilling.

On a day that saw the shilling lose momentum after two days of gaining against the dollar, MPs announced plans to look into the role of Central Bank of Kenya and commercial banks in the weakening of the shilling.

The notice of motion, filed by Wajir West MP, Adan Keynan, proposes the formation a select committee to investigate and recommend a solution to the woes of the shilling. The committee will table its report to the House within four months.

According to Reuters, by midday Friday, commercial banks were quoting the shilling at 99.80/100.00 against the dollar, weaker than Thursday’s close of 99.50/80.

At the same time, President Kibaki on Friday assured Kenyans that the CBK and other government agencies would implement measures to stabilise the shilling.

The President said the measures will address the speculation in the trading of foreign exchange as well as reduce the rate of inflation.

“In addition, the Central Bank will build up its foreign exchange reserves to considerably reduce the volatility in financial markets,” he said.

The President was speaking during the official opening of the 2011 Nairobi International Trade Fair.

The CBK and commercial banks have been trading blame on the cause of the weakening of the shilling.

While the CBK has blamed banks for holding onto the dollar to weaken the shilling, the banks say poor policy decisions by CBK are to blame.

The Kenya shilling is currently the worst performing currency in the world, having lost over 20 per cent of its value to the dollar since January.

“This depreciation trend has made Kenyans and foreign investors incur huge losses and the cost of transacting business unfairly expensive,” reads a section of the notice.

The motion is expected to be debated when Parliament resumes on October 11.

With power to summon both the CBK, commercial banks’ executives, and also Treasury, the select committee could provide an insight on why the shilling touched a low of Sh104 to the dollar this week.

CBK would be compelled to divulge the names of commercial banks it has accused of arbitrage and hoarding of the dollar.

On Wednesday, the Kenya shilling touched a historical low, exchanging at Sh104 against the greenback. This sent panic across markets forcing the regulator to adopt new strategies of pumping dollars into the market.

This strategy is expected to cushion the shilling from speculators, especially commercial banks.

While this had provided some relief for the shilling in the last two days, yesterday, the shilling edged back to exchange at an average of Sh100 on demand by importers.

The fall to came only a day after a ‘high-level’ committee was constituted by the government to look into the woes of the shilling.

Other industry players like the Kenya Association of Manufacturers and the Federation of Kenya Employers have also added their voices to the call for a speedy solution to the shilling’s woes.

Addressing journalists after a meeting at Waajiri House, the FKE board warned that the instability of the shilling could result to job cuts.

The FKE executive director, Jacqueline Mugo, said the government’s interventions to stabilise the shilling “is a little being done too late and is not having desired impact.”

“The fall is not good for business as we can’t plan,” Ms Mugo said.

Reporting by Joseph Bonyo, Lucas Barasa and Peter Ng’etich