CS Ndungu: Kenya shilling is adjusting to its real value

Treasury Cabinet Secretary (CS) Njuguna Ndung'u speaking on Spice FM on Wednesday, November 29.[Screen Grab]

Treasury Cabinet Secretary (CS) Njuguna Ndung'u now says the depreciation of the Kenyan shilling against the dollar cannot be controlled.

Speaking on Spice FM on Wednesday, November 29, Ndung'u said that the Kenyan shilling is just adjusting to its real value.

"I have seen some papers say a free fall exchange rate is bad as the currency is depreciating. No, it is not bad for the currency to depreciate, it is adjusting to its true value," said Ndung'u.

According to the CS, the normal exchange rate is an automatic stabilizer which moves to equilibrate the economy.

However, instead of allowing the exchange rate to adjust itself naturally, the holders of office before him managed the exchange rate.

This in return caused a misalignment of the exchange rate and created a parallel market reducing the flow of foreign currency into the Central Bank of Kenya (CBK).

He claimed that the Jubilee regime invested more in infrastructure projects which in the process affected the non-tradable sector as they could not be traded internationally.

"We went through a period of managed exchange rate and when you go through it you cannot intervene in terms of the market process. We were heavily investing in infrastructure projects in the process affecting the non-tradable sector," he said.

According to him, the prices of non-tradable projects were rising and at the time the exchange rate was being managed making it hard for the exchange rate to align itself according to the country's current economic state.

In October, data by CBK showed that the shilling had reached a historic low with an average exchange rate of 149.78 against the dollar.

A spot check by The Standard shows that several major banks had set their selling price for the dollar between Sh155 and Sh157 per unit while the buying price ranged from Sh151 to Sh148.

This according to the CS is happening because the normal exchange rate must move to an equilibrium as the market is only supposed to be regulated and not managed or interfered with.

This means the shilling will continue to depreciate if need be until it reaches its true value.

However, Ndung'u says things are slowly coming to normalcy as the government is working to ensure the shilling is floating and the country's capital account is still liberalized.