Bloomberg News

Kenyan Lawmakers Adopt Parliamentary Report on Shilling Collapse

March 15, 2012

Kenyan lawmakers adopted a parliamentary report that calls for changes at the country’s central bank, including more oversight of monetary policymakers and merit-based recruitment of the bank’s governor.

The report was “unanimously approved” yesterday, Adan Keynan, chairman of the parliamentary committee that prepared the report, said in a phone interview today from Helsinki.

The decision by parliament comes a week after legislators struck a clause from the report recommending incumbent Governor Njuguna Ndung’u step aside to allow for an investigation into his handling of the shilling’s historic drop last year.

Investors and politicians criticized Ndung’u last year for waiting too long to raise the bank’s key lending rate in the face of soaring inflation and the shilling’s almost 25 percent decline against the dollar to a record low of 106.75 in October.

Market volatility led to the hoarding of foreign exchange, arbitrage profit by commercial banks and capital flight, according to the report based on testimony by government officials, economic analysts and bank executives.

Ndung’u attributed the shilling’s slide to a variety of factors, ranging from currency speculation to the deteriorating global economy that curbed export orders from the key European market, and Kenya’s increasing demand for imports. The 52-year- old former economics professor at the University of Nairobi was reappointed by Kenyan President Mwai Kibaki last year and he has three years remaining in his second and final term.

Inflation Slows

Investor confidence in Kenya improved after four increases to the central bank’s policy rate over the final quarter of 2011 to a record 18 percent helped the shilling gain 30 percent against the dollar, lowering import costs. Inflation slowed for the third month in February, to 16.7 percent.

The report also called for an audit of 12 lenders, including CFC Stanbic Bank Kenya Ltd. (CFCB) and Kenya Commercial Bank Ltd. (KNCB), with the largest foreign-exchange holdings in September, and said the minimum fine for violating central bank rules should rise to 20 million shillings ($242,718), from 1 million shillings.

It supported changes to the Central Bank Act to require the governor to appear for questioning before a parliamentary committee every quarter, and an overhaul of the Monetary Policy Committee, including adding an extra member on bank supervision.

Central bank management should face stiffer punishments for taking actions that “occasion the country huge losses,” while recruitment of the governor and the deputy governor should be done through a competitive process, not by appointment, it said.

Samson Burgei, a spokesman for the Central Bank of Kenya, wasn’t available for comment when Bloomberg called his office today and the bank didn’t immediately respond to a request for comment.

To contact the reporter on this story: Sarah McGregor in Nairobi at smcgregor5@bloomberg.net.

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net.


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