Bloomberg News

Kenya May Invoke Law to Impose New Monetary Policy, DaMina Says

September 28, 2011

Sept. 28 (Bloomberg) -- Kenyan Finance Minister Uhuru Kenyatta may consider invoking a law that enables him to impose a Cabinet-determined monetary policy direction on the central bank to help stabilize the shilling, DaMina Advisors LLP said.

Kenyatta is empowered by a rule in the Central Bank of Kenya Act to take action when an impasse exists between the finance minister and the regulator, the New York-based risk adviser said in an e-mailed research note today.

While Central Bank of Kenya Governor Njuguna Ndung’u has a mandate until 2014, Kenyatta, who may be a presidential candidate in elections scheduled for next year, “won’t long abide by Ndungu’s inability to get the country’s monetary house in order,” DaMina said.

Kenya’s shilling is the world’s worst-performing currency after weakening 21 percent since January to a record low of 104.20 per dollar yesterday, according to data compiled by Bloomberg. The currency of East Africa’s biggest economy has fallen as inflation soared to 16.7 percent in August, more than triple the government’s 5 percent target. The central bank has restricted liquidity to commercial banks in a bid to curb currency speculation and reversed several rate decisions this year, undermining monetary policy.

Kenya’s “domestic banking liquidity crisis” also resulted in interbank rates surging to as high as 28 percent from 2 percent over the past nine months, DaMina said.

President Mwai Kibaki, who is concerned about the central bank’s inability to stabilize monetary conditions, may also evoke another provision of the Central Bank Act to suspend Ndung’u for up to six months, DaMina said.

Four calls to Kenyatta’s personal assistant, Munyori Buku, didn’t connect when Bloomberg News phoned seeking comment today. Samson Burgei, spokesman for the central bank, was unavailable for comment when Bloomberg called his office outside normal business hours.

--Editors: Alastair Reed, Hilton Shone.

To contact the reporter on this story: Paul Richardson in Nairobi at pmrichardson@bloomberg.net

To contact the editor responsible for this story: Antony Sguazzin at asguazzin@bloomberg.net


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