Kenya’s central bank (CBK) said on Tuesday it’s going to sell foreign exchange directly to commercial banks in order to stem the volatility of the local currency against the U.S. dollar.
Central Bank of Kenya (CBK) Deputy Governor Haron Sirima told a media briefing in Nairobi that the apex bank’s interventions have slowed down the rate of deprecation of the shilling.
“Kenyan currency has performed better compared to other regional currencies,” Sirima said during the launch of the 2015 foreign Investment Survey.
The shilling is currently trading at approximately 95 to the dollar compared to 90 back in January. Sirima said that in the absence of the interventions, the local currency would have depreciated even further.
He noted that the CBK doesn’t have a target rate for the exchange rate because it is determined by forces of demand and supply. “So we will not defend a particular rate,” he said.
“What we are concerned about is the volatility and the rate at which the shilling is depreciating and appreciating,” he noted.
Sirima said that Kenya’s current account deficit is approximately ten percent of the Gross Domestic Product (GDP) because Kenya’s exports of tea and tourism have been sluggish so far this year.
The central bank official added that over the past four months, the shilling has also been under pressure due to enhanced seasonal demand for the dollar.
He said that the bank has adopted a tight monetary policy stance to minimize any likelihood of arbitrage activities between interbank and foreign exchange market.
“The bank has also enhanced prudential guidelines for financial institutions on foreign exchange dealings in order to promote transparency as well as to safe guard integrity of banking industry,” he said.
The Cabinet Secretary in the National Treasury Henry Rotich said that increased Diaspora remittances to Kenya as well as a global economic recovery will support the country currency from volatility.
Rotich said that Kenya will continue to monitor the exchange rate to ensure that only genuine demand determines the foreign exchange rate.
He added that there is enough foreign currency reserves to stem the volatility of the exchange rate. The CS added that there are no signs to suggest malpractice in the foreign exchange market.
“The current pressure from speculative behavior cannot be interpreted to mean manipulation of the foreign exchange rate,” Rotich said.
He stated that a key reason for the decline of Kenya shilling is link to trend of the rising dollar against all other major global currencies.
The CS said that Kenya has also signed an agreement with the International Monetary Fund (IMF) for a credit facility to ensure Kenya’s currency is insulated from volatility.
“We are currently doing an assessment that will be finalized in one month’s time to see if we need to tap into the IMF facility,” Rotich said. Enditem