Kenya May Raise Rates to Protect Shilling, Finance Chief Saysby
Central bank will continue to intervene in market when needed
Nation has enough reserves to safeguard macrostability
Kenya’s central bank will continue to intervene in the market and may tighten monetary policy to protect the shilling against excess volatility from the external environment, Treasury Secretary Henry Rotich said.
“We can take appropriate measures, including tightening of monetary policy and fiscal policy,” Rotich said in an interview Thursday in the capital, Nairobi. The “central bank has been intervening, and will continue with intervention whenever there are temporary demands which are not related to fundamentals.”
The Kenyan central bank kept its benchmark rate unchanged at 10 percent last month after loosening policy by 150 basis points in 2016. The currency of the East African economy weakened against the dollar almost every trading day in December and January, according to data compiled by Bloomberg. It depreciated as the dollar strengthened after the U.S. Federal Reserve raised interest rates and investors wary of previous post-election violence in Kenya grew increasingly cautious ahead of a presidential vote scheduled for August.
“We have been there before, where the Fed sometimes adjusts the rates and the rates put pressure on the shilling,” Rotich said. “We are still watching, closely monitoring the developments in U.S.” and outside the U.S., he said.
The shilling may decline further against the U.S. currency, the International Monetary Fund’s representative to Kenya, Armando Morales, said in an interview on Jan. 17. It strengthened 0.1 percent to 103.55 per dollar by 1:15 p.m. in Nairobi.
Kenya has enough reserves and other resources to help safeguard macroeconomic stability, Rotich said. This includes a $1.5 billion precautionary facility with the Washington-based lender.
“We have adequate resources to stem pressure,” Rotich said. Kenya can “deal with any temporary changes in the exchange-rate market.”