Kenyan President Reappoints Njoroge as Central Bank Governor
Kenyan President Reappoints Njoroge as Central Bank Governor
(Bloomberg) -- Kenyan President Uhuru Kenyatta reappointed Patrick Njoroge for a second and final four-year term as the East African nation’s central bank governor.
Kenyatta also named Sheila M’Mbijjewe as deputy governor and Mohammed Nyaoga as the regulator’s chairman for another term, according to a government gazette notice on Thursday. The officials’ new terms start June 18.
The reappointment of Njoroge, 57, emboldens him to continue measures that have helped keep the shilling stable even as major African currencies suffered double-digit depreciation over the past four years. The valuation of the currency will also remain a sticky issue. Njoroge said the International Monetary Fund, his former employer, made mistakes in calculations that showed the local unit was 17.5% overvalued.
“Governor Njoroge’s reappointment will be seen as allowing for continuity, which will be especially important from a policy perspective,” said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered Bank Plc.
Unlike some African countries, Kenya doesn’t have a fixed peg and Njoroge has regularly used the foreign reserves mostly to push back speculators and manage volatility, said Ronak Gadhia, a director of sub-Saharan banks research at EFG Hermes Holding. “We will see relative stability in the shilling especially given the recent build up in reserves,” Gadhia said.
Below are other things to watch in Njoroge’s second term.
Interest Rates
The central bank introduced a program under which banks will lend to small businesses for interest rates as little as 9%. Njoroge earlier opposed a law that limits what lenders can charge for loans at no more than 4 percentage points above the prevailing benchmark rate, partly because it complicated monetary policy formulation. The High Court annulled the law in March and suspended its enforcement for a year to give lawmakers an opportunity to reconsider its provisions.
“On monetary policy there is very little he can do,” Gadhia said. “If you can look at his record before the rate-caps were introduced, it was very conventional, it was targeted at inflation and if the rate caps are removed that is exactly what he will do,” Gadhia said.
Bank Consolidation
As KCB Group Plc. buys National Bank of Kenya, and NIC Group Plc. and Commercial Bank of Africa Ltd. merge, Njoroge said there is more bank consolidation coming. The deals vindicate Njoroge’s opposition to the National Treasury’s failed attempt to force consolidation by increasing banks’ capital requirements fivefold.
Inflation
The Monetary Policy Committee led by Njoroge kept the benchmark lending rate at 9% for a fifth consecutive meeting in May on the outlook that inflation would slow, which it did to 5.5% last month. Food prices climbed after drought spells cut harvests and contributed to price growth accelerating at the fastest pace in 19 months in April. The unfavorable weather could also see East Africa’s largest economy expand by 5.9% this year, compared with earlier forecasts of 6.3%.
Expansionary Fiscal Policy
One of Njoroge’s challenges going forward will be the government’s expansionary fiscal policy after tax-revenue for the nine months through March only managed 63% of the annual target. Additionally, there is concern that the government, that recently raised $2.1 billion in Eurobonds and got a $750 million World Bank loan, is taking on too much debt. The government is in talks with the IMF for a new standby loan should the country face balance-of-payment problems.
The budget deficit is seen at 6.1% of gross domestic product in the year ending June, and Njoroge said the headroom for new borrowing has diminished.
Microlenders
Njoroge might go after microlenders, who mostly lend using mobile-phone based payment platforms, and charge interest rates several times higher than what commercial banks do. Njoroge said these lenders, who the central bank doesn’t supervise like it does those who take deposits, are like loan sharks on “steroids” and need to be better regulated.
To contact the reporters on this story: David Herbling in Nairobi at dherbling@bloomberg.net;Eric Ombok in Nairobi at eombok@bloomberg.net
To contact the editors responsible for this story: David Malingha at dmalingha@bloomberg.net, Rene Vollgraaff
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