Outgoing CBK Governor Dr Patrick Njoroge differs with Dr Kamau Thugge on dollar bond plan
Outgoing Central Bank of Kenya Governor Dr Patrick Njoroge. Dr Njoroge has differed with Dr Kamau Thugge, who has been nominated to succeed him, on the plan to float a dollar-denominated bond locally to mop up the large volumes of foreign currency deposits held by banks.
Central Bank of Kenya (CBK) Governor Patrick Njoroge has differed with Dr Kamau Thugge, who has been nominated to succeed him, on the plan to float a dollar-denominated bond locally to mop up the large volumes of foreign currency deposits held by banks.
Dr Thugge, while appearing before the National Assembly’s Finance and Economic Planning Committee on Tuesday for vetting, said he will work with the National Treasury to issue the dollar bond to get rich locals and businesses to release the foreign currency.
“If we can get Kenyans holding dollars in deposit accounts to release them by buying into the bond, then we will have the possibility of increasing the liquidity of dollars in the system and this will help us in building up foreign exchange reserves at the CBK,” Dr Thugge said.
Slippery slope
But Dr Njoroge, whose term ends on June 17, says the government would be venturing onto a slippery slope with the proposal and a lot needs to be taken into consideration before the planned bond is floated.
The CBK governor, while hosting his last post-Monetary Policy Committee meeting press briefing yesterday, said there is nothing alarming about the growth of foreign currency deposits in the banking system. He noted that banks are already using foreign currencies and so there is nothing to be mopped up.
“The concerns are misplaced. Issuance of a dollar-denominated bond is not a slam dunk; it is not a surefire. It risks fanning the flames of dollarisation in the economy”, Dr Njoroge said y. “If you look at foreign currency deposits as a share of total deposits in the banking system, it is about 20 per cent. There’s no real concern from the share perspective.” Dr Njoroge said.
The value of foreign currency deposits in banks by individuals and firms has been on an upward trend in recent months, hitting the Sh1 trillion mark for the first time in March, largely driven by a weak shilling. CBK data shows foreign currency deposits hit Sh1.058 trillion in March, a 7.19 per cent increase from Sh987.7 billion in February.
The Kenyan shilling has also continued its slump against major world currencies, which has boosted customers who hold cash in foreign currency. For instance, the shilling was trading at a mean of Sh132.33 against the US dollar on March 31 down from Sh126.85 on February 28.
