By James Anyanzwa
The latest change of heart comes four months after the Parliament voted to expunge the Governor’s name from the Parliamentary Select Committee Report on the depreciation of the shilling.
Prof Ndung’u, who was addressing financial sector stakeholders’ supported commercial banks’ arbitrage activities – the practice of taking advantage of a price difference between two or more markets, saying it was allowed.
“Market arbitrage is not a crime. Everybody must take advantage of the opportunities in the market. What is criminal is price manipulation,” Ndung’u told a financial services conference in Nairobi yesterday, adding that,” arbitrage is good to the market since it allows the market to adjust to the opportunities available.” CBK was blamed for the rapid depreciation of the shilling, which saw the local unit fall to a record low of Sh107 against the dollar in mid October last year. Ndung’u however blamed the shilling’s freefall on speculation and arbitrage activities- profiteering from the price differential between two or more markets- among certain commercial banks.
“ We cannot allow this arbitrage to continue. We have taken action on them (banks) but we cannot discuss the action. Let us not focus on which banks because that one we are not going to answer. Our lips are tied,” Ndung’u told reporters last year, adding “This type of exposure will put pressure on the exchange rate. We will restrict them from any arbitrage using the domestic currency.”
During the period, five commercial banks were blacklisted by CBK for fuelling the rapid fall of the shilling through speculation and arbitrage practices.
Four of the banks were found to be holding very large overseas positions, which did not reflect trading fundamentals. He also blamed drought for the depreciation of shilling, though experts blamed CBK for allowing cartels to rake in billions of shilling through foreign currency manipulation.
Ndung’u said yesterday the weakening of the shilling was triggered by the Eurozone crisis and the big current account deficit, which stood at 11.4 per cent of the gross domestic product in April.