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{
"id": 17160,
"url": "https://info.mzalendo.com/api/v0.1/hansard/entries/17160/?format=api",
"text_counter": 296,
"type": "speech",
"speaker_name": "Mr. Kenyatta",
"speaker_title": "The Deputy Prime Minister and Minister for Finance",
"speaker": {
"id": 168,
"legal_name": "Uhuru Muigai Kenyatta",
"slug": "uhuru-kenyatta"
},
"content": " Mr. Speaker, Sir, I wish to make a Ministerial Statement on the recent developments in the shilling exchange rate, while at the same time responding to requests by the Member for Gwassi and the Member for Githunguri who sought the same on 16th June, 2011 and on 26th July, 2011, respectively. Mr. Speaker, Sir, since July, 2011, the shilling has substantially weakened against the US dollar, sliding from about Kshs80 in January, 2011 to about Kshs107 on 11th October, 2011. The depreciation has not only been rapid, but has also been very volatile. The weakening of the shilling against the international currencies is associated with increased demand for foreign exchange, reflecting large imports of oil because of the sharp rise in prices of crude oil in the international markets. In addition, the increase in demand for foreign exchange also reflects large imports of maize necessitated by the adverse impact of drought in Kenya. The volatility of the shilling caused uncertainty in the foreign exchange markets and, therefore, triggered panic buying of dollars with market players, including banks, taking dollar positions that also worsened the situation. Mr. Speaker, Sir, the depreciation of the shilling has raised the cost of fuel and transportation as well as other imported raw materials, thereby putting pressure on inflation and increasing the cost of doing business in Kenya. The weaker shilling has also increased the shilling cost of Government external debt thus putting pressure on budgetary resources. Mr. Speaker, Sir, with regard to the actions the Government is taking to stabilize inflation and the shilling, first and foremost, I wish to inform the House that a number of actions have already been taken by the Central Bank of Kenya to address the issue. These include tightening of monitoring policy by raising the policy rate by 400 base points to 11 per cent. This action will tighten credit conditions and reduce demand pressure which will in turn ease inflation and stabilize the exchange rate. The Central Bank of Kenya stands ready to take further actions in this regard if necessary to stabilize the shilling. The Central Bank of Kenya has lowered the foreign exchange exposure limit of commercial banks from 20 per cent to 10 per cent intended to ensure the foreign exchange markets are also streamlined. To mitigate the impact of tightening monetary policy on interest rates, the Government is in the process of reviewing once again its recurrent expenditure with a view of cutting back again on non-critical areas. We are mindful that containing Government expenditure will contribute to easing inflationary pressures and reduce imports. Overall, the Government is committed to living within the budget framework that I announced recently. Mr. Speaker, Sir, with these measures that we are taking, we are, indeed, confident that the current pressures on prices and exchange rate will subside going forward. In this regard, we are already seeing the shilling firming up against major international currencies. As of yesterday, it had strengthened to Kshs99.2 to the US dollar. We are also discussing with the IMF on the possibility of availing additional resources under the ongoing extended credit facility arrangement. Overall, these actions we believe, will encourage banks to re-align their portfolios, stem capital outflows and boost foreign exchange reserves thereby restoring stability in prices and the shilling exchange rate in the intermediate term. In conclusion, the Government wishes to re-affirm that the underlying economic conditions are, indeed, still broadly sound and it remains fully committed to take actions to restore macro-economic stability, if and when needed. Lastly, I wish to call upon all players in the foreign exchange markets to trade responsibly as their actions will ultimately affect the business community and Kenya. It is, therefore, incumbent upon all of us to be responsible in our day to day operations, so that we continue to put this country on a sound economic footing. Thank you, Mr. Speaker, Sir."
}