Governor Professor Njuguna Ndung’u said on Tuesday that the Central Bank Rate hike from seven percent to 11 percent and the $3.7 billion reserve measure will eventually improve the performance of the local currency.
Ndung’u who appeared before the Parliamentary Committee on Finance said the country had suffered even worst droughts in the past, and the supply side had resolved very effectively within six months.
“That was our expectation but we didn’t know that our supply side was having problems with fuel taking about 31 percent. As we stand now since the Euro crisis is refusing to dissolve as fast as we expected we are watching that side as well as our supply side,” he explained.
Committee Chairman Chris Okemo expressed satisfaction with CBK measures and announced that they would summon Finance, Agriculture and Energy ministers to enumerate the measures they have put in place to cushion Kenyans against inflation.
Okemo, a former Finance Minister, said the government was continuing talks with the International Monetary Fund about providing Sh26.5 billion ($250 million) to Sh31.8 billion ($300 million) of balance-of-payments support.
The funds will be in addition to an almost Sh54 billion ($509 million), three-year credit facility agreed to in January, according to the Finance Ministry.
The shilling has weakened 24 percent this year as inflation accelerated to 17.3 percent last month, more than triple the government’s five percent target.
Ndung’u explained that the recent drop in Kenya’s foreign-exchange reserves was largely because of sales by the central bank to support the shilling.
The country’s reserves declined to $3.73 billion last week from $3.78 a week earlier.