Is The Central bank of Kenya to blame?

I must admit it ain’t easy at any time to be a policy maker, an individual or corporate decision affects millions of people whether positively or otherwise. Political instability, oil crisis and weak government policies are to blame for the current economic phenomena. It’s therefore apparent that several factors are to blame for the weakening of the shilling and the runaway inflation. In my today writing allow me to single out government policies (both Fiscal and Monetary) which have brought us to this ugly state.

I woke up to peruse the business news as usual and was disappointed to see inflation has it a rapid high of 6.54 %.It’s disturbing to see the local investor unable to thrive in forex due to the daily souring of the shilling. An importer in Kenya today equals a speculator, with the fluctuation of the local currency. Many economists will argue that inflation is good for economic growth but what about a runaway one? .In the short run inflation might increase the GDP but that also affects the welfare of the general population negatively in accordance with the domestic consumption. Families moreover will channel more of their resources in purchase of basic consumption good and missing out on investment because of the savings dent.

When the regulator (CBK) reduced bank rate to 6.5% it was apparent that the economy would flood with liquid money. To highlight how this comes about let me illustrate it with the mushrooming infrastructure and growth of commercial banks portfolio. The additional currency in circulation is due to the rapid developments engineered by government (Fiscal policies),i.e. the channelling of resources to improve the road and housing network throughout the country, the profits released recently by commercial banks doesn’t amuse me either, when I see a commercial bank add a shilling from her final output,i see an extra shilling in circulation which demand an extra quick policy. With the public having a lot of liquid money (due to fiscal and monetary policies) in their coffers, demand for ‘needs’ highten, affecting the supply (due artificial shortage of goods). This therefore in line with the principle of demand and supply subsequently increases prices.

The Kenyan shilling hitting a high of 86 per dollar is a plus to the external economies, who are now able to import our good and services cheaply while it gags our forex players. The central bank of Kenya bonds with a coupon rate of 12% are indeed okay in mobbing some of the excess money in circulation but why drain a dam when it still has other tributaries to feed it?, With this reality hitting the public, its time policy makers rush to save the hoi polloi and investors from this crisis through rapid but feasible policies.