Pressure mounts on Kenya shilling
What you need to know:
- Value of currency dropping fast and seems headed for levels last seen in 2011.
- Government failure to pick new CBK governor has served to complicate matters.
The Kenya shilling continues to be under intense pressure as the government delays the appointment of a new central bank governor.
The Central Bank of Kenya (CBK), a key pillar in the management of the economy, has not had a substantive head for two months.
On Friday, the shilling weakened to a new low, to close at Sh97.4 to the US dollar and appeared headed to levels last seen during the currency crisis of 2011.
Deputy Governor Haroun Sirima is in charge but he hasn’t, unlike former Deputy Governor Jacinta Mwatela, been gazetted as the acting governor.
Even though Monetary Policy Committee (MPC), the key policy-making body, has quorum, the expiry of terms of members Sheilla Mbijiwe, Cliff Mukulu and Rose Ngugi and the recent exit of Governor Ndung’u Njuguna, who was the chairman of the key committee, has complicated matters.
SPEAKING TO THE MARKETS
Worse still, the CBK does no have a functional board of directors. The tenure of the former chairman, Dr Mbui Wagacha, expired several months ago.
While experts agree appointment of a new governor will not necessarily calm the markets immediately, they are arguing that someone in authority needs to be speaking to the markets constantly, briefing them and providing a road map on the currency’s likely trajectory.
(EDITORIAL: Appoint CBK boss to help stabilise shilling)
This person, who will be expected to help maintain the stability of the exchange rate, will also be directly accountable to the public.
Two weeks ago, expectations were that the MPC would jerk up rates to stimulate portfolio inflows of dollars, stabilising demand.
As it turned out, the committee decided to keep the signalling rate at the same level where it has been for months now.
In 2011, procrastination by the committee allowed the exchange rate to fall to Sh107 to the dollar within a short period. So far, the shilling has depreciated by 5.4 per cent between December last year and May 15.
It has been worse in the neighbouring countries, where currencies have depreciated by 8.4 per cent in Uganda and 14.5 per cent in Tanzania in the same period.
And, what are the main causes of the latest volatility in the market?
The truth is that the economy is not sitting pretty. Also, the country is presently importing more goods and services than it is exporting.
Tourism receipts have dwindled to levels not seen in many years. International prices of coffee and tea have not been good. The story is the same for cotton, pyrethrum, maize and wheat.
Although the overall balance of payments has been positive, it is only as a result of a rapid rise in short-term inflows — footloose dollars shipped into the country by speculators looking for inflated assets — such as stock markets and markets for government paper. In addition, inflationary pressure has been building up since January.
