NAIROBI: The volatile shilling has got a major boost after Treasury said that it had secured Sh67.5 billion precautionary loan from the International Monetary Fund ( IMF) to cushion it against shocks.
National Treasury Cabinet Secretary Henry Rotich said the Government had secured a precautionary Stand-by Arrangement and a Stand-by Credit arrangement with the IMF for Special drawing rights (SDR) of 488.52 million or $688.3 million.
Rotich said the credit facility which translates to about Sh67.5 billion at current exchange rate is necessary to mitigate against shocks that could derail the Jubilee government’s development agenda. “We intend to draw on the facility only in the event of an exogenous domestic or external shock,” Rotich said in the Budget statement delivered to parliament on Thursday.
Rotich said the Shilling exchange rate has been under pressure against the US dollar, largely due to the strengthening dollar in the global currency market as a result of strengthened US economy and the anticipation of a tightening of monetary policy by the US Federal Reserve Bank.
To avoid further pressures, which in part reflect, speculative behaviour, the Central Bank of Kenya (CBK) has tightened monetary policy by raising the Central Bank Rate to 10 per cent from 8.5 per cent.
The Government is hoping the tightening of liquidity combined with the significant level of foreign exchange reserves at CBK which are over of $7 billion (Sh686 billion) would bring the volatility to a stop. The IMF delegation was in the country a fortnight ago to assess how Kenya has been using its standby credit facility. The effects of slide of the shilling is expected to start being felt this month as importers pass on the exchange losses to consumers. Already loans are set to become a lot costlier after the CBK started tightening liquidity. Speculation has been blamed as the major cause of the slide of the local currency.
CBK has also been hard-pressed to explain whether the latest weakening could be linked to the shut down of 13 Somali remittance firms. CBK Deputy Governor Haron Sirima, however, said the bank of last resort had not seen any evidence that there was a decline in foreign remittances.
Dr Sirma who attributed the slide of the currency to speculation also said there was no evidence commercial banks were involved in manipulating the shilling as was the case in November 2011 when the currency was at comparable strain.
The shilling slide to a new three-and-a-half-year low of 98.15/98.25 to the American dollar on last month. Last Friday, it was hovering at between 97.10/97.30 to the dollar.
But it has been recovering some of its losses after the CBK continued to be involved in direct market operations, selling undisclosed amount of dollars to the interbank market. It has also benefited from positive sentiments after the Government named CBK governor designate.
