Njoroge calls out Thugge’s idea of local dollar bond

Central Bank of Kenya (CBK) governor Dr. Patrick Njoroge has rejected a proposal put forth by Dr. Kamau Thugge, a CBK nominee, on issuance of a dollar-denominated local bond.

Governor Njoroge said the proposal is misplaced on account of the significant amount of dollar deposits in commercial banks and a depreciation Kenya shilling.

During the vetting process, Thugge informed the panel that he intended to collaborate with the National Treasury to issue a dollar bond, that would offer attractive returns.

According to Dr. Thugge, this would encourage wealthy individuals and businesses to release dollars in their fixed dollar deposit accounts, held in local commercial banks.

However, Dr. Njoroge said the suggestion to issue a dollar-denominated local bond is not appropriate given the current circumstances.

Depreciating shilling

“We have observed an increase in commercial banks’ activities in foreign markets, resulting in the accumulation of dollar deposits. Additionally, the depreciation of the Kenyan shilling has contributed to the growth of these deposits in shilling terms,” Njoroge said.

The governor observed that the significant volume of dollar deposits in commercial banks reflected the increased participation of local banks in foreign markets rather than a need for a dollar-denominated bond.

His assessment indicated that the surge in dollar deposits was primarily driven by banking institutions seeking lucrative opportunities abroad, rather than a reflection of a shortage of investment options locally.

“There is no free foreign currency that is sitting somewhere in someone’s account, if you have a deposit somewhere the banks are using them,” Njoroge said.