Dr. Kamau Thugge, Governor of the Central Bank of Kenya (CBK), has accused former President Uhuru Kenyatta’s administration of overvaluing the Kenyan Shilling in order to reassure Kenyans that their currency is stable.
The Kenyan shilling fell to 151 to the dollar last week, a drop of about 24 percent in a year and a drop from approximately 100 in October 2018.
Thugge told a parliamentary committee on Tuesday that the Kenya Shilling is in free fall because the previous administration overvalued it.
“I think for several years now we have had an overvalued exchange rate,” Thugge went on to say.
He claimed that five or six years ago, financial institutions such as the International Monetary Fund and the World Bank thought the shilling was 20 to 25% overvalued.
“We tried to maintain a fairly artificially strong exchange rate, but at the expense of a loss of international reserves,” Thugge, who entered office in June of this year, explained.
He went on to say that Kenya’s foreign exchange reserves have fallen to around 3.7 months of import cover.
“It is still sufficient to address any emergencies but there has been a decline in the level of reserves trying to defend perhaps an overvalued exchange rate,” he said.
The dramatic depreciation of the shilling has exacerbated Kenyans’ economic distress, which has already been exacerbated by a high cost-of-living crisis and the installation of a slew of new or increased levies.