Let's put things in context. We all know how money supply is grown (credit growth). So looking at the Deposit corporation survey the change in money supply is 132 b from June 2011 to October 2011. At the exact same time the change in FCD (a component of money supply) was 78 b representing 58% of the increase. During this period there was a massive depreciation in currency. so FCD must have some bearing on $/Ksh and result in a weaker currency. It's likely due to increase remittances, but you'd have to then assume most remittances coming in aren't converted into ksh (thus kept in deposit), which is not likely (why wud they do this-unless they're speculating or have little faith in kes).

We're not agreed at all mate, but let's agree to disagree. Let move on to a different subject.

I wonder if the CB is in fx today... the intervention is pointless. Seems they want to be seen to be doing something. They also need to remove those fx restrictions and start negotiating with foreigners to increase capital inflows.

Kizee- as bidu says, its getting tedious/boring. Let it go

If M3 really is/was the issue, CBK should have jacked the reserve ratio. Unconventional? Innovative? Neither. Its how the Chinese brethren deal with money supply overhangs...

@mainat. Didn't CBK did that. CBR hikes are short terms measures and CRR is longer term. Don't take my word for it, just look at the aggressive bank balance sheet expansion in 2011 is a really important factor. The wazua analysts can calculate the level of leverage (assets:equity) for the big banks that creates pressure on capital ratios. What were the fast growing credit lines for most banks in Q3?

Liquidity had a part to play in the BOP change and how the imports were financed created the money supply/fx link. As soon as M3 contracted, so did private sector credit and foreign currency deposits (those aren't remittances)-that can't be coincidence (cos the $/Ksh followed).

@kizee. happened back during April-May 2008 when we had the short-lived safaricom credit bubble and around March-April 2009 when equity markets tanked. So to speed up GDP growth in May 2009, money supply (liquidity/leverage) had to be aggressively expanded-resulting in the CB creating the arbitrage through the reverse repo auctions and shortly after we got an IMF allocation (justifying worsening BOP, but with a 1 year expiry-result in CB purchasing $ in 2010).

The budget read in June 2009 became overly inflated and infrastructure focused. So the cycle of increased leverage and worsening BOP had it's origins back then following a major contraction in money supply. They can only contract for some time this time, so I suspect a few months from now the policy will loosen.

Kenya poised to mandate trio for $600 mln loan

http://af.reuters.com/article/i...ws/idAFJOE80G09120120117

Kenyan Shilling May Fall to 92 Per Dollar, Renaissance Says.

http://www.bloomberg.com...enaissance-says-1-.html

Well, if the FX controls are removed, 92 is a very fair figure!

Kenya current account deficit ended 2011 at $4.48 billion from $2.51 billion a year earlier. Overall BOP is still negative at -$51 million versus $163 million 12 months ago. Whenever a trade deficit widens foreign debt must be accumulated to maintain the balance.

@hisah. Balanced budget... not likely. Treasury has to pay 133 billion in local ccys debt in addition to 77 billion in new borrowing. That's a total of 210 billion. Just how will they do this? Means that something will have to give... expenditure or higher taxes.

Let's go through the BOP equation (y/y growth):

CURRENT ACCOUNT (+79%)
MERCHANDISE ACCOUNT (+26%)
Exports (+10%)
Imports (+19%)
SERVICES (-2%)

CAPITAL ACCOUNT (+66%)
SHORT TERM FLOW & ERRORS (+105%)
Short term flows (+49%)
Errors (+180%)

FINANCING (-131%)
Increase in Kenya reserves (+16%)
IMF (+242%)

OVERALL BALANCE (-131%)

Imports grew at twice the rate of exports and this is not good when considering that imports are 2.5x higher than exports in value. The capital account is keeping us afloat but only because of errors (CB can't account for). IMF has been our saving grace in financing our import bill cos as you can see the cost of consumption and intensive investment is a paltry 16% rise in savings.

Time for CBK to Cut Rates

Kenya's monetary policy committee (MPC) meets on Wednesday to assess the impact of last months meeting on the economy ,a meeting in which the MPC left the Central Bank Rate (CBR) unchanged at 18%, the move was solely aimed at adding more impetus to the Shilling's recovery. The currency for East Africa's largest economy's rapid depreciation in 2011 was blamed for Kenya's runaway inflation which clocked 19.7% in November 2011. The Shilling has gained more than 19% since making a string of all time low's last year against the green back, last time I checked it was trading at 84.7 against the US Dollar (USD) but the economy has been a victim of MPC's contraction monetary policy.

Read more on this link http://contrarianinvesti...ime-for-cbk-to-cut-rates