CBK pledges to stop a bumpy fall of the shilling

NAIROBI, KENYA: The Kenyan shilling is expected to depreciate against the United States dollar this year, according to a survey done by the Central Bank.

CBK has promised to intervene to cushion sudden moves, although the Central Bank Governor Dr Patrick Njoroge stated that they would not defend a specific rate.

"From the monthly Market Perception survey, we noted that the exchange rate is expected to weaken," Dr Njoroge said during a press briefing on Tuesday.

On Tuesday, commercial banks were quoting the shilling at 103.95/104.05 per dollar. Dr Njoroge however warned against speculating to try and influence the rate.

"We only ask them three questions, do you expect it to strengthen stay the same or weaken. The general sense is that it will weaken, what we do not ask them is by how much. And the moment they begin talking how much of course we will want to talk models, fortunately they do not let me discuss these things," Dr Njoroge said.
The Governor said that CBK is committed to a market driven rate and would only act to stop volatility.

"We have a flexible exchange rate regime so we do not defend or target any one rate. The only thing that concerns us is volatility. When the exchange rate is appreciating quite quickly, we can intervene to buy dollars and when the exchange rate is appreciating very quickly, we can intervene by selling dollars to reduce the pace," he said.

At the beginning of this year the shilling drastically gave way to the dollar dipping from 100 points to 103 in a matter of days.

Dr Njoroge had been able to manage stability of the forex market since 2015 September when it hit 106 against the greenback, the lowest point in his regime.

Historically however, the Kenyan shilling once touched 107 against the dollar which soured the tenure of former Central Bank of Kenya Governor Njuguna Ndungu.

When he took office, Dr Ndungu had seen the shilling oscillate between 67 and 92 points against the dollar.
However, in 2011 depreciation of the Kenyan shilling to a low of 107 units to the dollar and 19.72 per cent inflation in November sent tongues wagging leading to a parliamentary probe that blamed Prof Ndung'u for hesitating to act and propelling the slide.

Dr Njoroge now says that the relative stability under his tenure has consistent with the strengthening of the current account with very clear inflows from exports and outflows to imports through the forex market.

"It is true, there is a lot of speculation thinking that things will go haywire because of whatever their consideration. I think that those people need to chill and look at the facts and numbers and maybe they will come to a different conclusion," Dr Njoroge said.

The current account deficit widened to 6.2 per cent in May due to short term import demand for cereals, sugar and SGR related transport equipment. However CBK expect the difference between exports and imports will narrow to 5.8 per cent by the end of the year.