NAIROBI, Kenya, Jun 8 – The Central Bank of Kenya (CBK) has ruled out any intervention measure to shore up the local currency.
CBK Governor Prof Njuguna Ndung’u said the weakening of the shilling against the US currency was due to market developments in Europe which have seen investors substitute their Euro denominated portfolio with dollar denominated assets.
“The events in Greece have impacted on the common European currency thus investors are fleeing from currencies like the Euro and the Sterling Pound to the US Dollar that is perceived as a safe haven,” he explained in a statement.
As a result this demand for the US currency and the assets quoted in dollars are increasingly driving up its prices in relation to the other currencies including the Kenyan shilling and the regional currencies.
However, the Governor assured that the local currency fundamentals are strong as evidenced by the strengthening of the shilling against the Euro.
On Tuesday it was exchanging at Sh82.30 to the dollar while the Euro which has for weeks been declining, settled Sh98.
Prof Ndung’u said the country had a stable Exchange rate policy and expressed confidence that the market will correct itself particularly when the uncertainties in the Euro zone are addressed and the volatility in the international market stabilises.
“A flexible policy like ours is an automatic stabiliser meant to absorb the external shocks hitting the economy. To the Central Bank, these shocks are temporary and the exchange rates movements are fulfilling their role,” he added.
The CBK’s statement comes a day after Crown Berger urged the government to intervene and stop the shilling from depreciating further.
Chief Executive Officer Rakesh Rao said the weakening shilling was hurting many businesses most of which were now considering passing on the costs to their end consumer.
The Central Bank, however said it expected that the private sector had its hedge instruments in place to mitigate the current volatility.