Central Bank of Kenya Governor Dr Patrick Njoroge responds to some
questions before the National Assembly Finance Committee on July 30,
2015 to shed more light on the depreciation of the shilling against the
dollar. The Kenyan shilling on Monday fell to 106 against the US dollar,
close to its all-time low of 107, raising prospects of high consumer
prices given the country's overreliance on imports.
The
currency, which has now lost 16 per cent against the dollar in 2015, is
reeling under the weight of a rising import bill and a looming interest
rate hike by the US Federal Reserve Bank.
Kenya's
export base is drying up due to low exports and a struggling tourism
sector that is yet to recover from the effects of attacks by
Somalia-based Al-Shabaab militant group.
The Central
Bank of Kenya has in the last few weeks been very active in its open
market operations, mopping up the shilling's liquidity, driving the
interbank rates up to 26 per cent.
HEDGE AGAINST THE DOLLAR
The
government has recently taken a back seat and even said it intends to
hedge its activities against the strong dollar, meaning that the State
won't be doing much to shield consumers from the high import prices.
Kenya imports food items ranging from wheat to maize and sugar, leaving it exposed to external shocks.
Kenya's current account deficit — the difference between foreign currency inflows and outflows — increased by 22.7 per cent to Sh623 billion in the year.
The country's infant manufacturing sector has been seen as the main reason the currency has taken a beating.
The
central bank governor of Nigeria Godwin Emefiele is reported to have
gone a step further by involving himself in industrial policy due a
sharp fall in the naira. The raging market volatility has exposed the
helplessness of central bank governors in emerging markets.
Fearing
an expected interest rate hike by the US, the central bank governor of
India Ragum Rajan, a celebrity economist opposed the September US rate
hike deadline saying it would cause turbulence in emerging markets given
weaknesses in China.
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