MPs want Ndung’u out of CBK over shilling’s fall

Central Bank Governor Njuguna Ndung’u was Thursday thrown into a new battle for survival after the parliamentary committee that investigated last year’s historic depreciation of the shilling recommended his sacking.  

In a report tabled before parliament Tuesday evening, (DOWNLOAD: Parliament report on the decline of the Kenya Shilling) the Select Committee wants President Kibaki to constitute a tribunal to investigate the governor’s “conduct, incapability and incompetence” to perform the functions of his office.

It proposes that Prof. Ndung’u immediately vacates office to pave the way for further investigations into the exchange rate turmoil that saw the Kenyan shilling plummet to a historic low of Sh107 to the US dollar with devastating ripple effects on the cost of living.

“The committee finds Prof Ndung’u’s conduct and behaviour incompatible with what is expected of the holder of the office of governor of Central Bank of Kenya,” reads part of the report that committee chairman Adan Keynan put before parliament.

The report claims that the CBK boss failed to act in good time to prevent the sharp decline in the shilling’s value, triggering a wave of panic that resulted in the hoarding of foreign currencies and speculation in the forex market. Prof. Ndung’u is specifically accused of keeping the interest rates charged on banks borrowing from the CBK through the Discount Window below the Inter Bank and Treasury bill rates causing a distortion in the market that fuelled speculation and arbitrage – the borrowing from the CBK and use of the same money to buy government debt.

The report further claims that Prof Ndung’u aggravated the currency crisis by downplaying the gravity of the matter in his public pronouncements.

The MPs claim that the governor emboldened the speculators and unscrupulous currency traders with successive public pronouncements that he would not intervene in forex market and ultimately failing to name the banks he later said were responsible for arbitrage and hoarding of foreign currency when he appeared before the committee.

Economists have argued that the complexity of the economic environment, which required the governor and his team of monetary policy wonks to weigh the risk of limiting the circulation of money and stifling growth against the consequences of a weak currency made it difficult to hold an individual responsible for the turmoil.

Besides the ouster of Prof Ndung’u, the committee further wants the Ethics and Anti Corruption Commission and the Auditor General’s office to carry out a forensic audit on the operations and transactions of the Discount Window and foreign exchange trading by 12 banks that had the largest foreign exchange holdings during the tumultuous period.

The report says that three top banks curiously accounted for 42.2 per cent (Sh174.5 billion) of the country’s total forex holdings by September but the governor gave them a clean bill of health on grounds that they had provided adequate explanations when asked to do so.

The committee claims that the CBK was culpable for the crisis in its failure to notice and act against CFC Stanbic, Standard Chartered and Citibank that had significantly increased their activity in the foreign exchange market without a plausible explanation.

The report says that 12 major commercial banks held 87.7 per cent of the total forex assets by September 2011 when the currency crisis began but does not directly link them to the turmoil.

Parliament also accuses senior commercial bank officials and board members of playing in the arena of conflict of interest by continuing to hold senior positions in policy organs or commissions with direct impact on financial and monetary policy.

“The committee finds top management and board members of some banking institutions hold board positions in key policy organs that influence policy stance,” the report says.

It cites the example of Equity Bank chief executive James Mwangi who chairs the Vision 2030 board.