Central Bank boss bags top award

CBK governor Njuguna Ndung’u. PHOTO/FILE

What you need to know:

  • World Bank Africa economist Wolfgang Fengler likened the situation to flying a plane into a hurricane with one engine overheating and another not functioning. There were those who believed that the governor was not quick in  adapting to his new role, having been tapped from academia.

  • “He was too slow to respond to price shocks in the market that led to a weakening of the shilling against the dollar to historic lows,” said the head of treasury at Equatorial Commercial Bank, Mr Bernard Omenda. “But he has now learned from that.” 

The governor of the Central Bank has been named the sub-Saharan Africa Central Bank Governor of the Year.

Emerging Markets, an international news magazine that gives award each year in recognition of the achievements of leading policymakers in emerging markets, feted Prof Njuguna Ndung’u for “his stewardship of the Central Bank of Kenya that has inspired faith and confidence in central bank policy among key stakeholders.”

This is a complete turnaround of a governor who, only two years, ago was voted the worst central banker in Africa.

With the governor ending eight years at the helm of CBK in March next year, the award could well be seen as a vote of confidence on how Prof Ndung’u picked up the pieces and steady the management of the economy.

Two years ago, Prof Ndung’u made headlines when he was voted the worst banker in Africa. In a Reuters’ Survey conducted in December 2011, analysts polled gave Prof Ndung’u a rating of 3.1 points out of the maximum 10 points.

They said he was the “least effective policymaker for failing to spot and act against rising price pressures and then presiding over a stunning collapse in the Kenyan shilling”.

In the same year, South Africa’s Gill Marcus was ranked the best central banker in Africa’s emerging and frontier markets with a score of 8.2 points out of 10 and was closely followed by Nigeria’s Lamido Sanusi with 8.1 points.

The poll coincided with the time when the Kenyan economy was going through a turbulent period due to a combination of both local and international market dynamics. Around the time the poll was conducted, the Kenya shilling was recovering from a free fall, after trading at a historic low of Sh107 against the US dollar. As some of the analysts now admit, the woes that hit the shilling were partly driven by factors outside the Central Bank’s influence.

“A lot of it was down to the behaviour of offshore counterparties, who were shorting the Kenyan shilling quite massively,” recalls Razia Khan, the head of Africa research at Standard Chartered.

Inflation also surged to a high of 19.72 per cent in November, with CBK raising the benchmark lending rate by 11 percentage points to 18 per cent in three months to contain macroeconomic instability.

World Bank Africa economist Wolfgang Fengler likened the situation to flying a plane into a hurricane with one engine overheating and another not functioning. There were those who believed that the governor was not quick in  adapting to his new role, having been tapped from academia.

“He was too slow to respond to price shocks in the market that led to a weakening of the shilling against the dollar to historic lows,” said the head of treasury at Equatorial Commercial Bank, Mr Bernard Omenda. “But he has now learned from that.” 

Indeed, Prof Ndung’u seems to have learnt well. The citation of the award says: “The award particularly recognises the governor’s role in spearheading monetary policy measures which have been credible in fighting inflation and maintaining price stability during an era of global economic turbulence, championing financial inclusion initiatives and banking sector innovations.”

Prof Ndung’u was nominated by a panel of renowned public and private sector economists, analysts, bankers, and investors who noted that his tenure at the Central Bank has been characterised by monetary and financial sector policies that have contributed to a supportive environment to growth

EVENTS THAT LED TO THE AWARD

Analysts say the events that led to the award involved active engagements with commercial banks through the Kenya Bankers Association (KBA).

“He had got the reputation of not wanting to listen to people when he first came in as a governor. With time, he learnt to take into account other opinions and make decisions that are more considered. Now, he seems to be much more sobre,” said economic analyst Robert Shaw.

The changes he has introduced have led to openness in the market, especially with regard to accepting banks’ recommendations regarding reforms or meaningful intervention.

“He has been engaging with commercial banks more closely, but initially, he was out of touch with them. From an industry level, he didn’t have enough support from commercial banks. He also didn’t have sufficient political goodwill,” said Mr Omenda. In an interview with Emerging Markets magazine, Governor Ndung’u said that setting up an independent monetary policy committee with executive powers, as opposed to an advisory one is key milestone under his leadership.

He has also brought stability in the financial markets monetary tools such as setting interest rate and liquidity management.

The Central Bank Reserve rate has remained at 8.5 per cent for about a year and a half. Inflation has remained in the single-digit arena for over a year now. The shilling has also stabilised around 89 units against the dollar currently.

But to those interested in his legacy, nothing will be more remembered than his backing of the money transfer services. It is under his tenure that mobile money services thrived, helping deepen financial inclusion from less than a fifth of the population to more than 66 per cent currently.

 “The proportion of the population using informal financial services has declined to 7.8 per cent from 33.3 per cent in 2006,” Central Bank says in the 2013 Banks Supervision report.

This was also supported by decision to license agency banking, allowing financial services to be offered in kiosks.

And as he prepares to exit CBK in March 2015, Prof Ndung’u says he looks forward to going back to academia.

“We don’t retire. We just change clients,” he told Emerging Markets magazine.