Central Bank of Kenya - Term Paper Example

By the end of 2011, the Kenyan Shilling had experienced a major fall from trading to a cost of 80.09 to 110.12 to the Dollar. This depreciation affected negatively on savings and investments. Kenyan people are concentrating on foodstuffs more which were on the rise since man cannot live without food. However, the Central Bank of Kenya tried to raise interest rates to tackle the devaluation of the Shilling and inflation. The governor was put on notice regarding the sharp fall of the currency but no critical answer was given by him.

Kenya is to hold elections in 2012, so the devaluation of the Shilling was directly and indirectly involved. Big fish in the political arena were assumed to best benefit from the high exchange rate by selling off the number of dollars that one was possessing, thus campaign money availability to them. That is an indirect involvement. Central Bank reaction was a bit slow since they believed it was an external force which was hitting the Shilling. Noticing that speculative effects were also coming in, and external sources were neither slowing down, it reacted by its governor stating that he was determined to see exchange rates being propelled by the market.

Generally, the Shillings confidence would be undermined if decisive action was to be taken against external forces. In regards to this, the exporters are the major benefits of this happening while importers cry foul. Also, the risk-takers of foreign currency loans had a bad financial end year. Central Bank was true, able to control the Shilling due to its application of banking principles on top of its objectives. While banks form a major backbone to any country, the Central Bank is the overall boss.

Incompetence projected by some of the individuals who run them sees political interference, which indeed, is a major setback in the banking sector of any country.