Friday, September 30, 2011

Raila sets team to save the shilling






By John Njiraini
The apparent failure of the Central Bank of Kenya to stem the shilling's slide has stung the Government into action.
Prime Minister Raila Odinga on Tuesday created a team of technocrats cutting across various sectors, and including representatives of the Treasury, the Central Bank, Office of the President, Planning Ministry, the statistics office, the private sector and Vision 2030 Secretariat.
The team is expected to come up with fresh measures to bolster the shilling.

A statement from the PM’s office supported the general view that CBK’s efforts have so far failed to deter speculators — blamed for the driving down the unit — from continuing to profit from the shilling’s weakness.
The local unit is now the world’s second worst performing currency this year after being battered by double-digit inflation, foreign investor dumping, riskier assets in emerging markets, and a loss of confidence in CBK’s policies.
Experts have said the local currency’s freefall, if not arrested, will push inflation (cost of living) to higher levels hurt the economy and breed more civil unrest.
Parents with children in universities and colleges abroad are finding it costly to pay fees and other charges because predicting a daily or weekly exchange rate for the local unit has become difficult in recent weeks.
Both the Central Bank Governor Prof Njuguna Ndung’u and Finance Minister Uhuru Kenyatta are out of the country attending to different matters.
Basic necessities
Uhuru, who is also the Deputy Prime Minister, is attending his confirmation of charges hearings on Case Two at the International Criminal Court Pre-Trial Chamber II at The Hague, while Prof Ndung’u is said to be attending some meetings abroad.
In August, Uhuru asked CBK to restore monetary stability and said his ministry was in discussions with the bank about policy.
"We’ve got this crisis that’s blowing up hard. We’ve got a situation at the moment where the Finance Minister is in The Hague, the Governor is still abroad, so we’ve got this crisis here and there are questions of who’s in charge? Who is managing it? Everybody’s saying ‘Who’s in the driving seat’?" Robert Shaw, an independent Nairobi-based economist told the Reuters news agency.
"In terms of whether that is a go at the Central Bank Governor, there are a number of questions as to how it’s being handled by the Governor, from the beginning to now," said Shaw.
The local currency on Tuesday recovered slightly after sliding steadily over the last three weeks, trading at Sh99.65 against the dollar, after weakening to an historic low of Sh104, but it is still down 23.5 per cent so far in 2011.
The meeting called by Raila came, as it emerged that more Kenyans are finding it difficult, if not impossible, to afford basic necessities with the weak shilling pushing many into the poverty bracket.
"While recognising the measures already taken by the Central Bank of Kenya to address this problem, the Prime Minister reiterated the need for further action to restore confidence in the financial market," said a statement from the PM’s office.
"It still creates uncertainty," Kennedy Butiko, deputy head of treasury Bank of Africa told Reuters, adding: "But the initial market reaction is for people to sell the dollar because they perceive the committee will have to come up with guidelines that will favour the shilling."
In recent days the Central Bank has been engaging in desperate and disjointed intervention measures to contain the depreciation, which experts are warning has reached alarming levels in as far as economic stability and quest for survival for ordinary Kenyans is concerned.
With majority of Kenyans barely managing to make ends meet due to rising costs of living, the unavoidable continuous surge in inflation and upward adjustment of interest rates by commercial banks is expected to make a bad situation worse.
"As manufacturers we are worried because it is becoming impossible to run profitable companies in this regime," said Kenya Association of Manufacturers chairman Jaswinder Bedi.
Although manufacturers of essential products have painstakingly absorbed most of the rising costs of production associated with importation of raw materials and energy to cushion consumers, it is becoming increasingly apparent this cannot go on for much longer.
Independent power
Over the past months, the prices of basic commodities like maize flour, sugar, cooking oil, wheat flour and paraffin have hit the roof.
Also on an upward trend has been the cost of electricity, after Kenya Power decided to increase the pass-on fuel surcharge from Sh6.7 per unit to Sh8.2 per unit, apparently due to the rising costs of oil used by independent power producers (IPPs).
The move is having heavy toll on manufacturers and consumers alike.
On Thursday the Prime Minister constituted a high level technical team of key stakeholders in the private sector to come up with comprehensive measures to arrest the decline, with the outcomes expected next week.
While a fortnight ago President Kibaki assented to the Price Controls Bill to contain the runaway increases in basic commodities, implementing it in the current environment of the shilling’s turbulence could prompt some manufacturers to relocate to other countries, leading to loss of jobs and more poverty.
It would also prompt hoarding of essential goods by traders in the hope of profiteering from higher prices caused by the any ensuing shortages.
Manufacturers of such goods believe it could trigger speculative trading, making availability of the very products it is meant to make affordable another headache for Kenyans.
"The cost of manufacturing has gone up particularly in terms of energy and importation of raw materials," said Kenya Private Sector Alliance (Kepsa) chairman Patrick Obath.
He added that Kepsa is undertaking study on the impacts of the shillings on Kenyans and what the CBK must do to tame the freefall.
"It is important for Kenyans to know the impacts of the depreciation of the shilling on the economy," he said.
As CBK continues to battle with commercial banks, which it is accusing of causing the freefall as a result of speculation for selfish short-term gains, the impact has leave a trail of desperation among Kenyans.
Reuters quoted analysts saying the government needs to look beyond just monetary policy to resolve the crisis, as the risks to the wider economy from the shilling’s weakness are significant.
Historic high
"A coordinated approach, going beyond the limits of monetary policy alone, is needed.
This suggests a joint solution is in the works covering fiscal policy, possibly lumpy capital imports, cooperation from the private sector, and a determined stance from the central bank," Razia Khan, Head of Research, Africa, at Standard Chartered bank told the news agency.
Since January, the shilling has depreciated by 25 per cent against the dollar from Sh80.94 at end of January to a historic high of Sh104 to the greenback this week.
In tandem, inflation has increased from 4.5 per cent in December last year to a 16.6 per cent last month and projections are that when the Kenya Bureau of Statistics releases new figures anytime this week, inflation will surge to anything between 17 and 18 per cent.

No comments:

Post a Comment