(Updates with an analyst’s comment in third paragraph.)
Sept. 29 (Bloomberg) -- Kenyan Prime Minister Raila Odinga formed a team to come up with “comprehensive measures” to help stabilize the shilling as the central bank’s Monetary Policy Committee said it would hold its second meeting in three weeks.
Government officials and industry leaders will devise ways to steady the currency and recommendations will be made next week, Odinga said in an e-mailed statement today from Nairobi. The MPC, which raised interest rates by 0.75 percentage point to 7 percent after an emergency session on Sept. 14, will meet again on Oct. 5, according to the central bank’s website.
“It’s turbulent times now and what they should do in this meeting is bring market players and central bankers together,” Fred Moturi, a fixed-income trader at Sterling Capital Ltd., said in a phone interview from Nairobi. “If their goal is to stabilize the shilling and inflation, the most likely scenario is that interest rates will rise.”
The shilling weakened 19 percent against the dollar since January and ranks as the world’s second-worst performing currency, after neighboring Uganda’s. The currency fell as inflation soared to 16.7 percent in August, more than triple the government’s target, after the worst regional drought in 60 years cut agricultural production. The government aims to keep inflation at 5 percent.
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 defend the shilling, DaMina Advisors LLP said yesterday. Kenyan President Mwai Kibaki may also choose to use another provision of the Central Bank Act to suspend Ndung’u, 52, for as long as six months for a tribunal to review his “competence and abilities,” the New York-based risk adviser said.
Kenyatta, 49, has been at the Hague-based International Criminal Court since last week for a pre-trial hearing to confirm charges of crimes against humanity during violence after a disputed 2007 presidential election. The public hearing is scheduled to end by Oct. 5. Kenyatta says he’s innocent of the charges.
Kenyan law requires the Monetary Policy Committee meets at least every two months. At its previous meeting in mid- September, the MPC, as the committee is known, reiterated its policy to contain inflationary pressures and announced the biggest increase to the key lending rate since it was introduced in June 2006.
Uncertainty in Kenya’s financial markets began when the central bank defied analysts’ expectations and cut the benchmark interest rate to a record low of 5.75 percent in January, even as economists forecast that inflation would soar.
Central Bank of Kenya Governor Njuguna Ndung’u has blamed the currency’s decline on speculation, the deteriorating global economy and the country’s increasing demand for imports paid for in dollars.
The slumping currency has stoked inflation, which is eroding consumers’ purchasing power, Betty Maina, chief executive officer of the Kenya Association of Manufacturers, said in an e-mailed statement today.
She called on the Finance Ministry and lawmakers to help central bank ease volatility in the currency market before investors leave the country for a cheaper place to do business. “The current situation is hurting growth,” she said.
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