Gachagua, CBK boss clash over forex reserves
Financial analysts warned yesterday that the lack of a clear communication policy between the presidency and government institutions could cause panic in the markets.
Their concerns follow Deputy President Rigathi Gachagua’s comments about a forex crisis which led to a rebuttal from the Central Bank of Kenya.
During an interview on Citizen TV on Sunday evening, Gachagua claimed that Kenya did not have a sufficient foreign exchange for oil imports, but CBK responded saying it does not control foreign exchange for commercial banks.
“Even yesterday, we had a crisis because at the Central Bank, we found there isn’t enough foreign currency to pay for oil imports,” Gachagua said.
But in a statement, the regulator said oil importers “obtain their requisite foreign exchange from the commercial banks and not from the CBK”.
“The new administration needs to manage their communication well and they need to listen to their advisors. The country is running under International Monetary Fund (IMF) conditions. Kenya has four months of import cover which is enough,” said analyst John Kirimi, former head of Sterling Investment Bank.
“Clear communication (not PR) is a policy tool. However it can be underdone, guidance is needed but not given. It can also be overdone by jumping at the slightest sign of danger. It takes calibration to find the right balance,” said Jared Osoro, the director for credit markets at the Financial Sector Deepening.
“We have a free foreign exchange market here. Banks don’t have to get dollars from the Central Bank unless there is a crisis,” said Kirimi.
“The Central Bank is right. Do not take economic advice from politicians, the supply issue could be due to very high demand but it is just a market issue rather than a crisis,” said Wesley Manambo of Genghis Capital.
In discounting the Deputy President’s statement, CBK said after the liberalisation of the foreign exchange market in the 1990s, all foreign exchange for private transactions are obtained from commercial banks.
“The Central Bank of Kenya notes the comments by the Deputy President, Rigathi Gachagua on October 2, 2022. CBK would like to provide the correct position regarding where oil importers obtain the requisite foreign exchange, and about the adequacy of CBK’s foreign exchange cover,” CBK said.
In the interview, Gachagua said there were no dollars to import oil last week.
“You have heard the Central Bank governor saying the previous government misused money in the last three months to September and we have a lot of problems. Yesterday we almost had a crisis since the Central Bank did not have dollars to import oil,” Gachagua said.
On Friday, CBK Governor Patrick Njoroge said the country has sufficient forex reserves.
“We have adequate reserves. The point is that the markets need to improve the way they are functioning,” he said.
“Yes there was noise in the market as we came near the elections. Now that the elections have ended and Covid-19 has come down, we expect that the market will continue to strengthen,” he added.
The exchange rate between the shilling and the dollar is at Sh120 but in the market, the disparity is so large sometimes trading at Sh130, according to Wesley of Genghis Capital.
Osoro, however, said that both the DP’s and governor’s statements were necessary for the market to find its rightful place.
“It is factual that oil importers cannot get their foreign exchange needs from the CBK. But if their demand occasions depreciation pressure, then the CBK’s operations kicks in or should kick in to calm things,” said Osoro.
Experts say the Deputy President’s speech could spark concerns in the markets, exacerbating the already volatile forex markets by making banks hoard dollars.
The lack of dollars has been worsened after Kenya was locked out of the Eurobond markets which is a crucial source of dollars for the economy given that Kenya is a net importer.
CBK governor last week said the country will soon be on the international markets seeking for loans to bridge the forex gap.
The Kenya Association of Manufacturers voiced concerns about the dollar scarcity from as early as May 30.
They said that their members, who rely mostly on imported raw materials, are unable to acquire dollars at the official market prices.
Living expenses have increased owing to rising inflation, and the weakening shilling is making matters worse as businesses lament higher manufacturing costs brought on by the ongoing dollar scarcity.