Treasury, October 6, 2015: By Joseph Kipkoech
The Central Bank of Kenya (CBK) seeks to weed out dealers manipulating markets in an effort to stem volatility of the shilling.
The CBK governor, Dr Patrick Njoroge, said financial institutions ought to adhere to rules on forex trading and increase oversight on dealers to eliminate market indiscipline.

“Occasionally we have seen the exchange rate moving, not because of supply and demand factors, but because of information that is not evenly shared, yet the rules in terms of acting in the forex market are clear,” said Dr Njoroge during a press briefing.
The governor was giving an update on the country’s financial sector to mark his hundredth day in office. On fostering market discipline, he said, the Central Bank had embarked on a campaign to clamp down on rogue players, particularly banks that manipulate the forex and currency markets.
“(We are) working to reduce market indiscipline. There have been concerns and we saw that recently in the forex market and elsewhere. We want all actors and institutions that are working in the financial sector to respect and follow market discipline,” he said.
He alluded to restriction of banks from borrowing in the CBK’s discount window but only as a last resort, as some of the measures the regulator had taken to ensure ethical behaviour by banks.
“This window is supposed to exercise the lender of last resort functions of the Central Bank. Banks should not come to it when they have a small problem. Banks have to be better in terms of managing their own liquidity,” said Dr Njoroge.
Citing the recent liquidation of Dubai Bank, Dr Njoroge said the regulator would not hesitate to crack the whip on unhealthy financial institutions to protect consumers.
“Any emerging cracks in the financial sector can always have catastrophic effects (in the case of Dubai Bank) we moved aggressively,” he said.
He noted that the proposed laws in the CBK 2015 Bill, which is set for debate in Parliament would aid the regulator in supervision by giving it additional powers.
The CBK governor said that stability is steadily returning to the country’s financial sector, with key indicators, including inflation and foreign exchange rate, stabilizing.
“Evidently stability is returning but this is not a battle we can say has been won and that is why the Monetary Policy Committee will continue to be aggressive to ensure stability,” he said.