Editorials

Address concerns over value of Kenya shilling

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Central Bank of Kenya (CBK). FILE PHOTO | NMG

Summary

  • Though the Central Bank of Kenya(CBK) has repeatedly shrugged off the tag of currency manipulation, questions on the matter can’t be wished away amid claims by several parties.
  • The US has since joined this discussion, tellingly urging Kenya to avoid manipulating its currency rates as the two nations pursue a new Free Trade Agreement (FTA).

The debate over the true value of the Kenyan shilling has lingered for some time now especially among economists, currency dealers, investors and traders.

Though the Central Bank of Kenya (CBK) has repeatedly shrugged off the tag of currency manipulation, questions on the matter can’t be wished away amid claims by several parties, including the International Monetary Fund (IMF), that the shilling is overvalued.

The US has since joined this discussion, tellingly urging Kenya to avoid manipulating its currency rates as the two nations pursue a new Free Trade Agreement (FTA).

This is perhaps an opportunity for the CBK and the Treasury to re-look at their monetary policy instruments and address all areas of suspicion because the value of the domestic currency is a critical issue in trade and investment circles.

With Kenya also currently pursuing new trade deals with the United Kingdom as well as dozens of countries signatory to the African Continental Free Trade Agreement (AfCFTA), it is important that the concerns about the value of the shilling are addressed decisively so that it doesn’t stick out like a sore thumb and compromise potential trade and investment opportunities that may come our way.

The value of the domestic currency has wide ranging direct consequences on a nation’s business and investment profile because it influences basics such as food prices, mortgage interest rates, job creation prospects and even the returns on investment.

This means that currency rate decisions should be kept as transparent as possible so that that investors and traders can make informed choices based on true market fundamentals and not temporary greasepaints aimed at appeasing the risk averse.

Though currency fluctuation comes with its risks, it in many occasions wins a vote of honesty among investors who view it as a natural outcome of diverse factors, including supply and demand, inflation outlook, economic performance and the state of capital flows.

The CBK should therefore as much as possible strive to maintain a floating exchange rate though this doesn’t mean that it stops certain one-off but critical interventions to support the shilling and make it favourable for international trade.