Shilling to continue fluctuating

October 7, 2011

, NAIROBI, Kenya, Oct 7 – Despite the Central Bank of Kenya’s (CBK) recent attempts to stabilise the shilling, fluctuations with the currency are expected to continue in the short term, according to Consolidated Bank Head of Treasury Joshua Kagia.

Speaking during an event for Consolidated Bank Club Partners on Friday, Kagia cited a high market demand for dollars and the on-going drought as key factors impacting the oscillation.

“The fluctuation of the currency has been a result of many factors, but the prevalent one has been the demand for the foreign currency, not necessarily from the banks. Generally we are an importing country. Our balance of trade is skewed towards imports. Therefore, the main cause has been a demand for dollars,” he said.

Kagia went further to defend banks on the matter of holding foreign currency, which the CBK said was in part to blame for the weakening shilling.

“The banks were holding about Sh137 billion in foreign currency. Everyone has been so sensational on apportioning blame and unfortunately for us banks, we’ve gotten a lot of bashing. In that holding, the amounts banks have is actually customer deposits in dollar accounts,” he stressed.

In comparison to last year’s foreign currency holdings of Sh110 billion, Kagia noted that this year’s holdings did not significantly differ considering that the exchange rate was much lower in 2010.

“In July last year the shilling exchange rate was at 80.30 meaning the Sh110 billion the banks were holding translated to about $1.3 billion and if you worked the holding of Sh137 billion against the current exchange rate of Sh100, you find it’s the same amount,” he revealed.

With the CBK’s recent hike of the Central Bank Rate by four points to 11 percent, Kagia said a rise in lending rates is inevitable as several banks will be forced to follow suit with the increases in inter-bank rates and the 91-day and 182-day Treasury Bills.

Meanwhile, as part of Consolidated Bank’s Business Club, local SMEs will have the opportunity to explore and expand their global business networks during a high level trip to Malaysia, Thailand and Singapore, at the end of this month.

Having experienced an economic boom over the past decade the three Asian countries that boast free enterprise economies, pro-investment policies and strong export industries, Kagia said will give members a one-stop shop experience to boost business by meeting manufacturers and suppliers of interest.

The bank’s General Manager of Business Development Japheth Kisilu said the club that began in 2008 aims to equip its members with practical business and wealth creation skills by offering them access to international markets.

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