Economy

CBK says shilling manipulation fears ‘misplaced’

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The Central Bank of Kenya building in Nairobi. FILE PHOTO | NMG

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Summary

  • CBK Governor Patrick Njoroge said Kenya does not and will not manipulate the shilling for competitive gain and hence such concerns are "misplaced."
  • The comments were triggered by the US seeking an undertaking that Kenya will let market forces influence the rate of exchange of the currency to the dollar as part of the trade agreement.

The Central Bank of Kenya (CBK) has dismissed fears of manipulation of the Kenya shilling amid the ongoing talks for a bilateral trade agreement between the United States and Nairobi.

CBK Governor Patrick Njoroge said Kenya does not and will not manipulate the shilling for competitive gain and hence such concerns are "misplaced."

The comments were triggered by the US seeking an undertaking that Kenya will let market forces influence the rate of exchange of the currency to the dollar as part of the trade agreement.

While noting that the demand by Washington is a routine measure during bilateral trade talks, Dr Njoroge said concerns of an overvalued shilling through manipulation were misplaced.

"Any concerns about movement and things like that I think are misplaced," said the CBK boss.

This pre-condition in the free trade deal (FTA) feeds into the International Monetary Fund (IMF) position in 2018 that Kenya’s currency was overvalued, which drew protests from the Central Bank governor.

Kenya and the United States on July 8 formally launched negotiations for a bilateral trade pact that the two economies hope will serve as a model for additional agreements across the African continent.

The CBK governor said that inclusion of the precondition in the trade pact is not a determination by the US that Kenya is a currency manipulator.

"That is the negotiating position of the United States...It doesn't mean that Kenya is a currency manipulator...this is not proof or a statement that Kenya is a currency manipulator," said Dr Njoroge said.

Dr Njoroge, has previously defended Kenya from the currency manipulation tag, insisting the foreign exchange rate reflected the shilling’s true value.

He added that the US precondition is a standard requirement of bilateral and multilateral trade negotiations agreements.

The Central Bank has often maintained that it does not operate a managed exchange regime and is committed to a flexible exchange rate regime. The bank only intervenes to smooth out excess volatility, Dr Njoroge has often said.