Central Bank eyes funds for long-term credit

The Central Bank is exploring the establishment of funds aimed at supporting long-term credit to break the cycle of short-term lending, the governor said on Friday.

“How do we increase the supply of long-term funds? That is a discussion that we have put in place and we have a technical committee working on that,” governor Njuguna Ndung’u told reporters.

Prof Ndung’u said the bank was seeking other ways of supporting economic growth which it has encouraged with a prolonged and aggressive easing cycle.

“We are consolidating the direction of monetary policy ... the direction that we are taking, we are going to hold it there and now support it through regulatory structures,” Ndung’u said. He did not elaborate on his comments about monetary policy.

The bank’s Monetary Policy Committee has cut its benchmark lending rate to banks five times since December, 2008, to try to get the economy out of the rut where it was pushed by that year’s post-election crisis, the global downturn and a drought.

Last month it left the rate unchanged at 7.0 per cent, citing a jump in private sector lending in the preceding two months and a benign inflation outlook.

The governor said the Kenyan shilling had been stable despite its sharp moves in recent weeks due to economic events abroad and a political row in the east African nation.

Greek debt

It first dropped to a six-and-a-half-month low against the dollar on the back of Greek debt concerns.

It then fell to an eight-month low this week after a dispute between the main partners in the coalition government.

“Stability does not mean constant. It doesn’t mean there will be no noise. Where is the noise coming from? Every time there is a slight problem, there is overshooting, then adjustment,” Prof Ndung’u said.

“One of the things is arbitrage. Because we have micro-traders and big traders, that is banks, we always have to see this kind of movement day to day. A big player coming in, political temperatures heating up.”

He said the bank would make decisions on whether to step into the market and buy dollars based on the government’s foreign exchange requirements and market conditions.

Political events in the country would have minimal impact on the economy despite worries by some senior executives who say political risk is their biggest concern, Ndung’u said.

“Economic forecasts don’t change because people don’t change production processes. Production is long-term decisions. Political climate is short-term decisions which are for politicians and you know they have cycles,” he said.