CBK Governor responds to requests for parallel exchange rates


Economy

CBK Governor responds to requests for parallel exchange rates


Patrick Njoroge, Governor of the Central Bank of Kenya. PICTURES | NJAU SALATON | NMG

The Central Bank of Kenya (CBK) has dismissed concerns that continued dollar shortages are triggering the emergence of a parallel exchange rate where lenders buy and sell well above the official printed rate.

CBK Governor Patrick Njoroge scoffed at manufacturers’ claims that dollar supply constraints forced them to buy the greenback at more than 120 shillings against the central bank’s official average exchange rate of 116.84 shillings per dollar as of Monday.

Dr Njoroge said the forex market has enough dollars to meet the demand from importers and businesses.

“The [forex] generates and distributes something like $2 billion every month. So if you have someone or an industry importing $90m or $100m, I think that’s a far cry from the $2bn we’re putting there,” the CBK boss said.

“They should understand that they are small in that sense and kind of go to market like everyone else. There are no favorites on the market. Follow the rules of the market and you will be fine.

On Monday, the Kenya Manufacturers Association (KAM) had called on the CBK to “propose and implement policy actions” to ensure enough dollars in the market to meet demand “in a timely manner”.

KAM Chairman Mucai Kunyiha said the mismatch between dollar demand and supply has persisted for months and manufacturers are buying more expensive dollars.

“This situation, compounded by the global challenges we all face, calls on the central bank and the Monetary Policy Committee to propose and implement policy actions that will bring the market back to predictability and, most importantly, supply. in foreign currency as needed in order to restore confidence in the market,” Kunyiha said on Monday.

Lily: Dollar shortage triggers parallel exchange rates

‘I found why’

But, while the CBK chief admitted a spike in dollar demand hit the market, he said it has since normalized.

“What is clear is that two months ago there was a large and unusual demand [for dollars] perhaps because of the dividend that was being paid. I think we all get it. But this whole season is over and money has been transferred,” Dr Njoroge said. “It’s a market of 2 billion dollars a month and it’s important. If you have an actor who comes for $1 million, $10 million or even $100 million and claims that this (market) is dysfunctional, then Kazi Kwako (it’s up to you to find out why).

Lily: CBK orders banks to ration scarce dollars

In April, KAM said banks had imposed caps on dollar purchases, making it difficult to obtain adequate foreign exchange to meet supplier obligations and hurting the ability to negotiate favorable prices in spot markets.

Two manufacturers also declared business daily at the time, that they had been forced to seek dollars in advance as the continuing shortage threatened to strain supplier relationships.

“It’s interesting that some of the people who write to us don’t even have jobs [and] they are not on the market. They are traders,” Dr Njoroge said.

Lily: Businesses pressure CBK amid dollar crisis

He added: “If you go to the market and deal with the specific banks according to the rules of the market, [then] this means that the banks, yourselves and even the dealers agree on the functioning of the markets. For you, as a customer, you don’t need to know the rules. Simply go to the bank and present your information [on] what you are making the payments for, etc.

The exchange rate has long been a sensitive topic, with most players preferring silence for fear of central bank retaliation.

The central bank has in the past reprimanded Stanbic Bank Kenya after a research note released by its parent company, South Africa’s Standard Bank, said a parallel exchange rate was emerging in the Kenya.

This forced Stanbic Bank Kenya to issue a public statement distancing itself from the research note. “The contents of the report do not reflect the position of Stanbic Bank Kenya Limited,” Stanbic said after the publication of the research note by the business daily.

Lily: Dollar shortage hits operations of Kenya-based oil distributors

KAM listed rising global prices for iron and steel, fertilizers and crude palm oil as some of the major imports that have increased in cost significantly and therefore require more dollars to purchase.

For example, the lobby says the price of a metric ton of crude palm oil – used to make cooking oil, soaps and glycerin-based cosmetics – has nearly tripled to $1,980 ( Sh231,283) in March 2022, compared to an average of $700 (Sh81,767) before the pandemic hit in March 2020.

“Of course, there have been other pressures due to the increase in the price of oil and other products. And that is happening, but the fact is that it may very well be taken over by the market”, said Dr Njoroge.

Kenya’s foreign exchange reserves – which are largely tapped for debt payments and essential government imports such as medicine – stood at $8.177 billion last Thursday. [about Sh955 billion], equivalent to 4.86 months of import cover. These were the lowest foreign reserve levels since $7.840 billion. [Sh915 billion]or 4.66 months of import cover, since March 31.

Official foreign exchange reserves, as published by the CBK, remain above Kenya’s legal requirement of four months of import cover and 4.5 months of cover for the seven-nation African Community bloc. from the east.

[email protected]

Previous $792.40 million in sales expected for Banco de Chile (NYSE:BCH) this quarter
Next Elon Musk, Jeff Bezos and Bill Gates lost billions as markets continue to fall