By George Obulutsa
NAIROBI (Reuters) – Kenya’s central bank governor on Thursday dismissed the market’s concerns about the impact of graft charges against the finance minister and attributed this week’s fall in the currency to seasonal demand for dollars.
The shilling has lost 0.8% since the charges against Henry Rotich were announced on Monday, to trade at 104.05 per dollar on Thursday, as traders fretted about a power vacuum at the finance ministry.
“I don’t know what a vacuum is in an institution like that. There are processes. There are mechanisms in place, and those mechanisms are executed. And it has to be done legally,” Patrick Njoroge, the central bank governor, told a news conference.
President Uhuru Kenyatta appointed Labour Minister Ukur Yatani as acting finance minister on Wednesday, a day after Rotich was charged with various corruption charges. Rotich pleaded not guilty to the charges.
Njoroge attributed the shilling’s weakness this week to excess liquidity in the money markets, which makes it cheaper to fund dollar purchases, and increased hard currency demand from private companies.
“Some of the actors, those companies needed to make external payments, meaning for instance you could think of a loan that has exhausted its grace period,” he said.
Seasonal demand for dollars from companies to pay dividends to their overseas shareholders had also contributed to the pressure on the shilling, Njoroge said.
“We expect those imbalances will sort themselves out, we expect inflows,” he said, referring to hard currency earnings from farm exports and tourism.
The shilling pared some of its losses in the afternoon session and after Njoroge’s remarks, to trade at 103.60/80 per dollar.
“It is just a market correction. It is a return to sanity,” said a currency trader at a commercial bank.
The economy, East Africa’s largest, is likely to grow by at least 6% this year, helped by a stronger-than-expected recovery in its key agriculture sector, the governor said.
The economy grew by 5.6% in the first quarter, slowing from 6.5% in the same period a year earlier, mainly due to the impact of dry weather.
But the rains unexpectedly came in late April, brightening the outlook for the economy.
“We expect growth to remain strong. We are projecting 6% as a baseline, with significant upside potential. So it can be stronger than 6%,” Patrick Njoroge told a news conference.
The finance ministry says the economy is likely to grow by 6.3% in 2019, the same rate as last year. Njoroge had said in May that the delayed rains could cut as much as 0.4 percentage points off the ministry’s forecast.
(Writing by Duncan Miriri; Editing by Frances Kerry)