HTTP 200 OK
Allow: GET, PUT, PATCH, DELETE, HEAD, OPTIONS
Content-Type: application/json
Vary: Accept
{
"id": 269595,
"url": "https://info.mzalendo.com/api/v0.1/hansard/entries/269595/?format=api",
"text_counter": 406,
"type": "speech",
"speaker_name": "Mr. M’Mithiaru",
"speaker_title": "",
"speaker": {
"id": 72,
"legal_name": "Ntoitha M'mithiaru",
"slug": "ntoitha-mmithiaru"
},
"content": "Mr. Speaker, Sir, I stand to second this Motion. From the outset, I would like to thank the House for the privilege of nominating me to this Committee. Mr. Speaker, Sir, it is the CBK and the banking system that are now in question. We know that one of the roles of the CBK is formulation and implementation of the monetary policy. This is aimed at ensuring that we achieve stable prices within the Kenyan economy and also maintaining and sustaining a stable value in the shilling. In order for the CBK to go around these roles, it has a few tools that it uses. I will name three of those tools, which are relevant to this debate. In order to implement the monetary policy, the CBK uses what they call “open market operations”. They also use the Discount Window of the CBK. They also use a tool called the “Reserve Requirement”, where they require commercial banks to deposit a certain proportion of their deposits at the CBK, but that amount earns no interest at all because the whole issue is what direction the CBK wants to pursue in terms of the monetary policy. Mr. Speaker, Sir, in the financial market, there is quite a number of players. We have the commercial banks themselves. We have the forex bureaus. When it comes to tools, there are the forex dealings and we have the CBK, which is the regulator of the banking system in Kenya. It is through this role of regulating that the CBK has to manifest that it has a monetary policy that it is following and giving direction, so that the country can have a stable economy. After the general election of 2007, I would say that from 2008 up to the first quarter of 2011, the CBK actually played a good role amidst very many challenges. A few of those challenges were the aftermath of the post-election violence, the drought of 2009/2010, the global financial meltdown that really terrorised all the economies of the world, as well as the Current Account Deficit. Mr. Speaker, Sir, I would say that from time immemorial, the Kenyan Current Account has been in deficit. Currently, the exports of Kenya, which earn foreign exchange, can only finance up to 51 per cent of the imports. So, for all those years, the Kenyan Current Account has been in a deficit. Considering these facts, when it came to 2011, something seems to have gone wrong. This is because, amidst all those problems, the CBK was able to contain what is called the “trinity”. It was able to contain the interest rates. It was able to contain the exchange rate. It was able to contain inflation. The CBK was doing very well amidst all the problems and the challenges that I have just cited. Mr. Speaker, Sir, in March, 2011, something started going wrong. We started seeing a runaway inflation. We started seeing the decline of the shilling. We started seeing high interest rates domestically. We would then have expected the CBK to play a leading role in terms of taking immediate action to arrest that situation before it went out of hand, but the response by the CBK was not that quick. If anything, what we heard from the Press was the CBK Governor said that there were some banks that were speculating, and that was why things were going out of hand. It was only the CBK that had the capacity and the instruments to contain that situation. To correct an impression that has already been painted by the Mover of this Motion, one of the tools that the CBK should have used was its Discount Window. The Discount Window rate is fixed by the CBK to reflect the monetary policy objectives and direction. That is how the CBK fixes the Discount Window. What now we saw from June, 2011, the discount window rate, ordinarily and principally, is supposed to be very punitive, so that the banks will visit the window as a last resort. A bank will visit the discount window as a last resort because the bank has already got some liquidity problems. What we saw in this respect is that the discount window rate was cheaper than the rate obtaining in the inter-banks market. What now does that mean? It means that the rate that is supposed to be punitive was no longer punitive, but was actually eased for some banks to borrow through that window."
}