Kenyas economy can handle shocks, Central Bank says

Kenya’s economy is resilient and has enough foreign exchange reserves to withstand any shocks from a rate increase by the U.S. Federal Reserve, the governor of the Central Bank of Kenya said on Thursday.

Like other emerging and frontier markets, Kenya has seen its currency and other assets drop in value this year as investors fled to safer assets as U.S. rate increase began to look more likely.

Aggressive tightening by the central bank has stabilised the shilling and anchored inflationary expectations, Governor Patrick Njoroge told journalists. The bank is even better prepared now, he said, in some respects, such as hard currency reserves.

“We have policy buffers. We have room to manoeuvre in changing rates,” he told journalists.

The benchmark lending rate stands at 11.5 per cent and rates on government securities have been coming down in recent weeks after peaking at above 20 per cent in October.

Hard currency reserves rose to $6.7 billion last month, or 4.3 months’ worth of import cover, from $6.1 billion at the start of October.

“We are actually stronger than we were. We can reduce volatility by just selling (dollars),” Njoroge said.

He said the economy does not rely too much on a single export commodity or a single trading partner, making it more resilient. Other African nations that rely on commodity exports have been hurt by a slide in prices.

“We are open but diversified. We are not a one-commodity economy,” the governor said.