NAIROBI, Kenya, Jun 27 – Central Bank of Kenya Governor Patrick Njoroge has reiterated that the CBK is ready to intervene in the money and foreign exchange markets to ensure smooth operation after Britain voted to exit the European Union.
He says Central Bank Governors from around the world have pledged to cooperate closely and take necessary action to ensure the orderly functioning of the financial markets.
Over the weekend, Governor Njoroge attended the 2016 Annual General Meeting of the Bank for International Settlements (BIS) in Basle, Switzerland where Central Bank governors from around the world discussed global financial developments and their implications.
“The meeting was dominated by discussions about the implications of the UK Referendum to leave the European Union, and the high volatility that was experienced in the global markets last Friday. Central Bank Governors noted the contingency measures put in place by the Bank of England and other central banks to limit volatility and support the smooth operations of financial markets. Central Banks will closely monitor markets,” he stated.
According to Cytonn Investments, Kenya will feel the effect of Brexit in a number of areas most importantly trade and re-negotiation of contracts for trade.
“Kenya is likely to face capital flight as investors seek safe havens like US treasuries and gold which may exert pressure on the Kenya Shilling in the short term,” the firm said on their analysis on Brexit.
The firm states that Kenya in 2015 exported 1.3 billion euros worth of products to the EU, a downward revision of growth prospects for the EU economies will result into lower external demand for Kenyan products, which may negatively affect the current account position.
“There is another potential impact in terms of tourism. UK is the largest exporter of tourists to Kenya, benefiting our local economy in terms of foreign exchange earnings, visa revenues, domestic spending, and the direct and indirect jobs created through the upkeep of the hospitality sector. UK’s vote to leave the EU has caused a significant depreciation in the Sterling Pound, which will make it more expensive for UK tourists to travel to Kenya, having a negative impact on our tourist arrivals and GDP growth, at a time when the tourism sector is struggling to recover,” the firm explained.
Meanwhile, the Kenya shilling traded at Sh101.15 against Sh101.35 to the dollar on Monday maintaining ground with little change from Friday’s market on the back of continued support by the CBK.
CBA’s Treasury Department said Brexit uncertainty was the driving factor.
Going forward, the shilling like all other emerging currencies should see some pressure as scared investors dump risky assets.