IMF urges disclosure of central bank’s forex actions

The International Monetary Fund (IMF) has urged the central bank to make public details of its operations in the foreign exchange market to improve transparency of local financial markets.

The Central Bank of Kenya (CBK) does not publish details of its actions in the foreign exchange market where it sometimes sells or buys dollars to manage exchange rate volatility, and neither do banks disclose how much they buy or sell to the regulator and each other.

Investors are left to gauge the amount of dollars the regulator spends or buys in interventions by looking at the movement of official reserves at the end of every week, a number that also reflects dollars spent in settling government debt obligations and receipts from foreign loans.

The CBK routinely snubs media questions on the movement of the reserves. “To help further develop financial markets and increase transparency, the authorities should consider publishing ex-post information on foreign exchange operations, such as volumes and number of participants, as do other frontier and emerging economies,” said the IMF in its Kenya country report released last week.

The recommendation is part of wider reforms the Bretton Woods institution is calling for in the money markets to help improve the effectiveness of the monetary policy framework. Other measures include improving liquidity forecasting, especially regarding large operations by the Treasury and reviving the dormant horizontal repo market.

Traders said the CBK was unlikely to start disclosure of forex sales and buys, adding that the regulator might prefer to retain the element of surprise to keep speculators at bay.

This week, with the weakening shilling, traders say the regulator is likely to be active in the market to prevent a rapid depreciation. The shilling was exchanging at an average of 101.97 to the dollar in the afternoon.