, NAIROBI, Kenya, Feb 14 – The Parliamentary Select Committee investigating last year’s rapid decline of the shilling has recommended that Central Bank of Kenya (CBK) Governor Njuguna Ndung’u vacates office for failing to stem the currency’s deterioration.
The committee led by Adan Keynan also proposed a tribunal to probe Ndungu’s conduct at the time when the local unit touched a historic low of Sh107 to the dollar.
“The committee finds the governor’s conduct and behaviour incompatible with the holder of the office of Governor of the Central Bank of Kenya and therefore recommends that he takes responsibility for allowing the sharp decline of the shilling,” the 84-page report says.
The committee members said that besides failing to intervene in good time, Ndung’u also created ground for the commercial banks to make huge profits through forex speculation.
While it did acknowledge that other factors such as the eurozone crisis and the high import bill could have contributed to the devaluation of the local currency by about 26 percent, the committee was convinced that policy indecisiveness and inaction of the CBK and the parent Finance Ministry were largely to blame.
On January 31, the governor appeared before the panel for the third time where he opted to name three banks that he believed were behind the steep decline of the unit.
Although the banks were named in a closed session, the report indicates that CBK wrote to CfC Stanbic Bank, Standard Chartered Bank and Citibank seeking explanation and clarification over their increased foreign exchange trading activity in the period under review.
In addition, the governor admitted in-camera that the CBK penalised CfC Stanbic Bank Sh1 million and suspended it from participating in the foreign currency swaps market for 30 days for flouting the set guidelines.
In the explosive session, the governor had brought along lawyer George Oraro who had previously sought legal counsel from the clerk of the National Assembly whether the CBK could divulge to the committee ‘confidential’ information on the banks. He categorically denied that forex hoarding and speculation took place.
He was however hard pressed to explain the Monetary Policy Committee’s indecision regarding the Overnight Discount Window which is the rate at which commercial banks borrow from it to meet temporary shortages of liquidity.
For instance in July 2011, the CBK announced the increase of the rate to eight percent but reversed it two weeks later to 6.25 percent citing distortions in the market.
“His announcement and release of CBK circular to bypass the banking system and deal directly with buyers or sellers of foreign exchange, although reversed, was in complete disregard of the financial structures and could have opened opportunities for rationing of foreign exchange, occasioning parallel markets to thrive,” the Keynan-led team argued.
The need to maintain a coherent monetary policy was cited as crucial to avoid such an occurrence in future.
The regulator was also criticised for its interaction with the banking industry at the time, a move they termed as ‘inappropriate.’ It is this communication that the MPs blamed for the rise in interest rates to nearly 26 percent in response to the hike in the subsequent indicative base rates.
The committee recommended the drafting of a framework that would dictate how the market players engage with the regulator.
“CBK should put in place thresholds or trigger values for which the foreign exchange should fluctuate in times of extreme crisis and at which the CBK would move in to restore stability,” the team suggested.
The Parliamentary team also advocated for reviews in the legal system, which for instance, would allow for transparent and competitive recruitment of the governor and his deputy.
In addition, the panel called for the amendment of the CBK Act to provide that the Governor appears on a quarterly basis before a relevant Parliamentary Committee to expound on their monetary policy.