Kenya can handle a U.S. rate hike- CBK

Kenya’s economy is resilient and has enough foreign exchange reserves to withstand any shocks from a rate increase by the U.S. Federal Reserve, the governor of the Central Bank of Kenya said on Thursday.

Like other emerging and frontier markets, Kenya has seen its currency and other assets drop in value this year as investors fled to safer assets as U.S. rate increase began to look more likely.

Aggressive tightening by the central bank has stabilised the shilling and anchored inflationary expectations, Governor Patrick Njoroge told journalists.

“We have policy buffers. We have room to manoeuvre in changing rates,” he told journalists.

A supplementary budget being prepared for parliament next month by Finance Minister Henry Rotich will see spending reduced, the governor said. He had said in September he was working with the Treasury to strengthen Kenya’s fiscal position.

“At least that is what he (Rotich) has committed to doing, so let’s see. That will in effect help,” the governor said.

The benchmark lending rate stands at 11.5 percent and rates on government securities have been coming down in recent weeks after peaking at above 20 percent in October.

Hard currency reserves rose to $6.7 billion last month, or 4.3 months worth of import cover, from $6.1 billion at the start of October. Kenya also has an IMF standby lending facility that it could tap in case of unforeseen shocks.

“We are actually stronger than we were … We can reduce volatility by just selling (dollars),” Njoroge said.

The governor said there was little risk of capital flight. Only 2 percent of investment in Kenyan government securities was by foreigners and just a quarter of stock market investments were made up of foreign funds.

Njoroge also said most foreign funds invested in Kenyan equities had proved to be long-term investors by holding their positions for several years. “This is not hot money that will go quickly after Janet Yellen sneezes,” he said.

He said the economy does not rely too much on a single export commodity or a single trading partner, making it more resilient. Other African nations that rely on commodity exports have been hurt by a slide in prices.

“We are open but very diversified. We are not a one-commodity economy,” the governor said.