By Melline Myendo

The Central Bank of Kenya has defended the shilling that has been depreciating against the dollar since last year.

The Central Bank says the shilling’s performance against the dollars has also been reflected by other regional currencies, which were, however, comparably more volatile.

CBK says the recent performance of the Shilling may be explained by examining global developments over the last one year. The U.S, Europe and Japan have adopted different policy solutions to revive their economies following the recession sparked by the global financial crisis.

In response to these crises, the world has witnessed what is now referred to as “Unconventional Monetary Policy” practiced in the US, Europe and Japan through the use of Quantitative easing where central banks inject massive levels of liquidity into the markets through an asset purchase programme in order to stimulate demand in the economy and boost economic recovery, which is often needed to combat the negative effect of deflation.

CBK says this resulted in the strengthening of the dollar globally. The Central Bank of Kenya says unlike other regional currencies, the shilling’s depreciation against the US Dollar has been gradual, and has now stabilized with a bias towards strengthening.

This has been mainly supported by strong investor confidence that has seen increased inflow of diaspora remittances, increased foreign investor participation in the stock market, and the successful issuance of the Sovereign Bond in June 2014 as well as lower international oil prices that has reduced the import bill.

CBK says it will continue monitoring the forex market and intervene when necessary to stem out any excessive exchange rate volatility.

Source:KBC