Central Bank of Kenya boss: Confidence in the economy remains strong

Central Bank of Kenya Governor Njuguna Ndung’u chaired his last Monetary Policy Committee (MPC) meeting on Thursday, keeping the base lending rate unchanged at 8.5 per cent. This is the rate at which the Central Bank lends to commercial banks.

The MPC concluded that the monetary policy measures, coupled with the favourable impact of lower international oil prices continued to support price stability. It however warned that divergent monetary policy paths taken by the major advanced economies may cause volatility in the global foreign exchange markets.

“This could lead to spill-over effects on the domestic foreign exchange market and domestic inflation that should therefore be monitored. In view of these risks, the committee decided to retain the Central Bank Rate at 8.50 per cent,” said Prof Ndung’u.

The MPC chairman said inflation remained within the government target range and the exchange rate of the Kenya Shilling against the US dollar and other major currencies maintained stable trend despite volatility in the global foreign exchange markets. The CBK’s level of usable foreign exchange reserves stood at $7.224 billion (Sh657.401 billion), which is equivalent to 4.65 months of import cover as at February 26, 2015.

Ndung’u said there were no imminent threats, with ‘confidence in the economy remaining strong’. His tenure at the helm of the bank charged with formulating the country’s financial and monetary policy will come to an end on March 4.

Stress tests on the banking sector, Ndung’u said showed that it remains resilient, supported by a sound regulatory and supervisory framework and a stable macroeconomic environment. Last week, bankers applauded him for his achievements. “Indeed, the relationship our industry has had with the regulator has very much been a dynamic one and positive developments have come with each new Governor – especially in the most recent past,” said KBA Chairman Joshua Oigara.

Ndung’u acknowledged that the financial sector players had over the last 10 years produced substantial progress towards improving the stability, accessibility, inclusivity and efficiency of the banking system.

Many praise him for introducing an enduring turnaround in Kenya’s banking system. In fact, just four months ago, he was named 2014’s Central Bank Governor of the Year in sub-Saharan Africa for his efforts to lower inflation, strengthen the shilling and improve the penetration of financial services. This went a long way towards rubbing off the 2011 stain on his legacy when he was rated Africa’s worst governor. He got the dubious ranking in the year he was reappointed at CBK for a further four-year term, on account of presiding over the fall of the shilling to record lows of Sh107 to the dollar, and failing to stem accelerating inflation.

Mobile money hub

And in 2007-8, when European and American banks were hit by a financial crisis that shook behemoths like Merrill Lynch, AIG, Royal Bank of Scotland and Fortis, and brought down giants like Lehman Brothers, Kenyan banks maintained an eerie calm.

However, despite the high praise, Ndung’u’s critics cite high lending spreads as one of the failures of the years he has been at the helm of the CBK. This is because when he took over in 2007, lending spreads were at eight per cent. Currently, the spread is at about 10 per cent. Savers have complained of the low returns on deposits, yet the cost of borrowing remains high. But Prof Ndung’u argues these issues go beyond the mandate of the Central Bank.

He said it is under his leadership that the country saw a sharp increase in the uptake of financial services. “Reflecting the impact of financial inclusion activities since 2007 ... access to financial services in Kenya increased to stand amongst the highest in Africa. The proportion of the adult population using formal financial services increased from 27.4 per cent in 2006 to 66.7 per cent in 2013,” Ndung’u said.

It is during his term that saw the rise of Kenya as the mobile money transfer hub. “The mobile phone financial services platform has put Kenya and the Central Bank in the world map of financial inclusion and an example of policy solutions that have worked,” he said. Mobile phone money transactions in November 2014 were valued at an average of Sh6.77 billion per day, which is equivalent to an estimated 3.8 per cent of re-based GDP per month.

And the introduction of agency banking in May 2010 has propelled the growth in the levels of formal financial inclusion by facilitating banks to provide banking services to their customers in a cost effective manner. “This has also improved deposits mobilisation by reaching the unbanked or under-banked. To date we have over 35,000 agents serving Kenyans in all corners of the country,” he added.

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