Central Bank of Kenya denied suggestions by the International Monetary Fund that it is propping the shilling and that the currency is overvalued.
It accused IMF of bias in its review of the country’s currency value arguing the global lender used the wrong methodology to arrive at its conclusion.
Addressing media at a post Monetary Policy Committee analysis, CBK governor Patrick Njoroge said IMF was grossly unfair in its assessment that showed the shilling is overvalued by 17.5 per cent.
‘’We respect and acknowledge IMF’s role in global economy. I however beg to differ with its ‘black box’ analysis of shilling’s performance. The survey ignored fundamental issues. It was suggestive in my view,” he said.
In a report released last month following a review on Kenya’s economic health, the international lender said the shilling may be overvalued by up to 17.5 per cent adding that it risked being classified as “managed” rather than operating on the forces of demand and supply.
“Reflecting limited movement of the shilling relative to the US dollar, Monetary and Capital Markets Department (MCMD) 2018 report on exchange rate arrangement will reclassify Kenya’s Shilling from floating to other managed arrangement,” IMF said.
Njoroge who declined to comment further on IMF’s statement insisted that CBK’s calculations support the view that there is no fundamental misalignment reflected in exchange rate, and reiterated that the shilling reflects its truthful fundamental value in market.
The MPC on Tuesday retained the country’s base lending rate at nine per cent, dismissing escalating concerns over shilling’s volatility in the market that has seen it lose grounds against the greenback in past weeks.
The shilling which was trading at Sh100.90 in September when the MPC last met closed yesterday at Sh102.67, up from Sh102.45 on Tuesday.
The shilling has shed 1.75 per cent over the last two months.
CBK yesterday acknowledged that the shilling is facing volatility but put on a brave face, stating that it is a global issue due to the simmering trade war between US and China.
“It is true that the shilling is having a special dose of volatility. This situation is not entirely unique to Kenya. There is uncertainty in global trade but we hope declining oil prices will ease pressure on the shilling,’’ Njoroge said.
He added that although Kenya’s forex reserves have dropped to $8.03 billion (Sh823 billion) down from $8.50 billion in September, the country is receiving steady foreign inflows enough to cushion the shilling from volatility.