Team meets this week to discuss controversial Central Bank Bill

Stakeholders will this week discuss the controversial Draft Central Bank of Kenya (CBK) Bill 2014 with governance and operational structure among the sticking points.

The Bill proposes to have a chairman who will oversee the performance of the governor and other board members and also creates several positions of deputy governors.

There are contradictions in the Bill over the chairman’s tenure, with one section saying it will be on a rotational basis and another stating that one will serve for a four-year fixed term.

Section 38(2) says someone can become a chairman by mere rotation within the board, but Section 33 (5) says the President can appoint a chairman to serve for four years if the sitting chairman vacates office.

This section is expected to feature prominently during the stakeholders’ meeting on Friday

Carol Musyoka, a banking and management consultant, said the contradictions should be resolved since it is not possible to have the president and non-executive directors appointing the chairman at the system.

“If the government wants to have a hand in the appointments, then it must be clear that the president appoints the chairperson. But it is a contradiction to provide that both the president will appoint the chairperson and the executive directors will also do so,” she said.

Under Section 35 (4), the position of chairman, and that of governor and his deputies, will be by a selection committee convened by the board.

The committee is made of the chairperson, one non-executive member, Treasury’s Principal Secretary, a representative of the Public Service Commission and two independent professionals in the finance, macroeconomics, law or international economics sectors.

READ: Draft Bill proposes single term for the central bank chief

The committee will then propose three names to the board, which will then be forwarded to the president for nomination. The person will be vetted by Parliament before being confirmed. This appears to rule out rotational chairmanship.

“The initial draft did not talk about rotating the chairmanship. Someone appears to have thought it was a clever move later but forgot that the process of appointing the person is already carefully specified elsewhere in the same draft,” said a source who choose anonymity.

Currently Dr Mbui Wagacha, economic adviser to President Uhuru Kenyatta on attachment from the African Development Bank, is the acting chairman.

A former key adviser on monetary policy at CBK said there should be three deputy governors instead of the two proposed. They will be in charge of operations, monetary policy and financial markets, respectively.

“As the draft law is currently structured, the two deputy governors will probably be assigned monetary policy and operations.

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‘‘But there is a third area where the CBK has not performed well; regulation of financial markets. That is why interest rates and the spreads are high,” said a former adviser who now consults for the banking industry.

He said interest rates could be tackled by banks sharing infrastructure to reduce costs.

The draft gives the board of directors extensive powers which some say are necessary to oversight the governor and the top management which would control the Monetary Policy Committee (MPC).