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Monday, December 9, 2019 - The Central Bank of Kenya (CBK) has rekindled its row with the International Monetary Fund (IMF) over the shilling’s valuation.

Towards the end of last year, IMF cast doubts on the real value of the Kenyan currency and pointed an accusing finger at Dr. Njoroge’s team for propping up the shilling.

The multilateral lender suggested that the shilling’s value was overstated by about 17.5 per cent of the real exchange rate.

Dr. Njoroge hit back at IMF and insisted that CBK only came into the market when there was a risk of volatility which could then affect the macro-economic outlook.

The CBK boss also accused the IMF of using a new methodology that had only been in place since 2015 to reach that conclusion.

“We are being used as a guinea pig on the External Balance Assessment-Light methodology,”

“The methodology was used in a black box method, which we cannot accept.” said Njoroge.

In its fresh report - An Assessment of Exchange Rate Misalignment in Kenya - which was published at the end of last week, CBK challenges IMF’s assumption and maintains that Kenya’s stable exchange rate is supported by economic fundamentals.

The study looked at the extent to which the country’s exchange has deviated from the ideal trajectory by looking at what is known as the real exchange rate (Reer).

Reer measures the price of foreign goods relative to the price of domestic goods.

“The study reiterates the need for sensitivity in the assessment of exchange rate misalignment since the magnitude of misalignment could vary across methodologies, owing to a set of built in assumptions in each approach,” reads part of the report.

The shilling has held its own against major foreign currencies while most African currencies have been losing ground.


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