CBK Refutes Claims of ‘Managing’ Kenyan Shilling
The Central Bank of Kenya (CBK) has downplayed the International Monetary Fund (IMF)’s assertion that it was ‘managing ‘the Shilling rather than letting it operate freely on the forces of demand and supply.
The CBK said the findings were worrying as it would elicit a suggestive reaction from the market.
“The Central Bank of Kenya notes the recently published IMF Article IV report on Kenya and its suggestion of the relative weakness of the external position vis-à-vis the fundamentals,” read the statement from the regulator.
CBK insisted that its calculations found out that there was fundamental misalignment reflected in the exchange rate asserting that the Kenyan Shilling indicates its real value.
According to an economic health report released this week, IMF had found out that the shilling may be overvalued by up to 17.5 percent.
The global lender had assessed the current country deficit which is brought about by the value of imports exceeding the value of exports. It found out that it could be above the norm resulting in the overvaluation.
Some other financial sector experts, however, believe that the CBK could be managing the currency to suppress the rise in the value of Kenya’s external debt which could be higher if the shilling depreciated.
“Assuming IMF is right, the shilling being overvalued by 17.5 percent means an extra 17.5 Kenyan shilling on the exchange rate. Multiply that by $25 billion of foreign debt and national debt goes up by Sh440 billion terms or an extra six percent on debt/GDP ratio. It looks like CBK has an eye on the debt metrics,” said Mohamed Wehliye, advisor at Saudi Arabian Monetary Authority.
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