Kenya’s central bank chief has said that the country’s currency, currently trading at record lows, has been overvalued for several years.
The Kenyan shilling this week slipped to more than 150 to the dollar, a decline of almost 24 percent over a year, and compared to around 100 in October 2018.
“I think for several years now we have had an overvalued exchange rate,” Central Bank of Kenya governor Kamau Thugge told a parliamentary committee on Tuesday.
He said that five or six years ago, financial institutions such as the International Monetary Fund and the World Bank had considered the shilling overvalued by 20 to 25 percent.
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“We tried to maintain a fairly artificially strong exchange rate but also at a cost of a loss of international reserves,” said Thugge, who took office in June this year.
He said Kenya’s foreign exchange reserves had dropped to the equivalent of about 3.7 months of import cover.
“It is still sufficient to address any emergencies but there has been that decline in the level of reserves trying to defend perhaps an overvalued exchange rate,” he added.
The shilling’s sharp depreciation has added to the economic hardship of Kenyans who have been suffering a cost-of-living crisis and the imposition of a range of new or increased taxes.
Anger over rising prices, particularly for basics such as food and fuel, led to a series of sometimes deadly protests against the government of President William Ruto earlier this year.
He has been accused of breaking promises made during the 2022 election campaign that he would look out for the interests of Kenya’s poor.
The government has argued that the removal of subsidies on items such as fuel and increased taxes are needed to improve public finances and ease the national debt burden of more than 10.1 trillion shillings ($67 billion).
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