Potato traders wait for customers at Soko Mjinga in Nyeri town . Investment in infrastructure would reduce wastage and help ease food inflation. File
The chorus of voices against the Central Bank of Kenya (CBK) is getting far too loud. And it is dangerous both for the course of monetary policy and guaranteeing the independence of the bank.
Media commentators have never missed a chance to advise CBK governor Njuguna Ndung’u in particular.
They have been constantly on his back with advice on how he should run the bank, panning his inflation policies, and giving their tuppence-worth on monetary policy. (READ: Costly loans, high inflation leave CBK in a tight spot)
To its credit though, the bank has maintained its dignity and acted in the most professional manner despite all the criticism.
CBK should be appreciated in that it does not go public in defence of the policy measures it takes. It chooses to remain neutral and unmoved whether it is being ridiculed, unfairly criticised, or praised.
A committee of MPs probing the shilling’s depreciation is the latest to have a go at the bank. It has accused Prof Ndungu of all sorts of things.
The accusations include refusing to name the banks he accused of currency speculation, and not directly responding to some of their queries.
They think he is arrogant and seem not to have enjoyed his “demand and supply” or his “Economics 101” lessons. In other words, they felt intimidated by the professor. So, they decided to hit back.
Parliament is a law-making body and the CBK’s authority comes from it. No doubt Parliament is also best suited to guard the guardians of monetary and financial stability in a democracy such as ours. However, MPs selected to sit on such committees need to be well-versed in monetary and financial affairs to act as an effective counterweight. Holding an institution like the central bank accountable requires knowledge.
The stakes are too high to leave such an issue in the hands of average parliamentarians for whom the intricacies of financial markets and monetary policy may hinder the proper exercise of accountability. Kenyans, therefore, expect that members of such a select committee have the technical expertise required to deal with monetary matters.
One would therefore assume that the MPs would understand the reasoning behind the governor’s refusal to, for example, not name in public banks that he accused of currency speculation.
Banks are high reputation-risk sensitive institutions. Certain supervisory decisions require a degree of confidentiality, given the psychological connotations of bank panic and contagion.
The need for covert measures by a central bank is of particular importance to contain such issues.
The fact that a financial institution is known to have engaged in an unacceptable behaviour could cause an irreparable damage to its reputation. The MPs should understand that Prof Ndung’u, in addition to monetary policy, is also responsible for the financial stability of the banking system.
Parliament, as an institution that is taking on more oversight roles, must learn to deal differently with the different parties that it summons.
Unsettling markets
When it summons the chief economist of the nation, it must not expect to receive the straight forward answers it would expect from say the government printer.
Central bank governors should not be expected to make comments which could result in unsettling markets. Central bankers as a tribe, so to say, do not talk out of turn and maintain a stiff upper lip under all circumstances, despite provocation.
CBK has done its part to cool demand and is stabilising the shilling. It is important that MPs ponder over the long-term issues of neglect instead of attacking the independence of a central bank which has limited instruments to tackle currency volatility.
They should focus on putting pressure on the executive and pushing for urgent economic reforms — starting with agriculture. Investment in the storage and supply chain and infrastructure would reduce grain wastage and help ease food inflation.
There is also need for reforms in land holding so that corporations can enter the space, consolidate fragmented land holding, and bring technology to agriculture — which would increase the yield and make Kenya self-sufficient in food.
On the infrastructure side, there has to be fast-tracking of ongoing road and port projects. The private sector needs to be encouraged through tax benefits and loan subsidies to invest in infrastructure projects.
The country’s long term growth trajectory can be endangered if MPs don’t see the real dangers to the economy and true triggers of inflation. A weak currency is a much smaller disincentive to the economy than erratic government policy, supply side cartels, politicking, and corruption.
Perhaps it’s time for the back-seat drivers to mute their commentary — and allow CBK honchos to get on with what is decidedly a challenging task in a volatile environment.
Wehliye is vice president, Risk Management Division, Riyad Bank, Saudi Arabia. [email protected]
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