What an interesting monologue...

@ scubidu,I hope the discussion (or monologue as sheep is referring to) in this forum are not about who is right or wrong...that's not my style.

Let me know what your issues/concerns about the CfC Stanbic bond issue. I'll see what I can do from my end.

@ scubidu, sheep...me is not the fair gender, poleni.

@scooby. Don't reactly sheepishly to sheeps jests. It was never about whose wrong or right; i appreciate ur keen insights. As you have put it "me is not the fair gender" either, but going any further than that is just asking for scandal.

@sheep. Scooby is Dr Jekyll :)

China could raise its cash reserve ratio to new highs in 2011

The central government could raise the ratio of reserves it requires banks to hold against their loans to 23 percent in 2011, as it continues to try to curb inflationary credit growth in the financial system, Lu Zhengwei, chief economist at Industrial Bank, said on Tuesday.

The figure would be the highest reserve requirement ratio ever set by a central bank, Lu said.

Zhang Xiaohui, head of Monetary Department of the People’s Bank of China, the country’s central bank, said in an article earlier this year that the ceiling for a central bank’s reserve requirement ratio is 23.5 percent.

Read more:

http://cnbusinessnews.co...-rise-to-record-high-2/

I think this is the sixth increase over the last year but it's interesting to observe such an event considering Kenya's reserve ratio has never risen above 20.0% even during 1993. In April 1993 Kenya's reserve ratio was raised from 6.0% to 8.0%, then 10.0% (Jul-93), 12.0% (Oct-93), 14.0% (Dec-93), 16.0% (Feb-94), and finally 20.0% (Mar-94). We briefly discussed the effects of raising reserve requirements in post 11 on the thread below.

http://www.wazua.co.ke/f...aspx?g=posts&t=5467

Here’s a blast from the past! An old Daily Nation paper for 24th September 1993 written by a Francis Makokha titled “CBK cash reserve ratio rises to 12 pc”. An excerpt was as follows:

The Central Bank has raised its cash reserve ratio from 10 per cent to 12 per cent – a move that may deal a severe blow to small commercial banks and financial institutions. At the same time, a senior CBK official predicted yesterday that donors would resume quick disbursement aid within two weeks after the return of Finance Minister Musalia Mudavadi from Washington DC where he will be attending scheduled for next week.

Beginning October 21, all commercial banks will be required to keep 12 per cent of their deposits with the CBK. Any bank with excess holdings above the new legal requirement will earn 35 per cent annual interest on the excess funds. Previously, no interest was paid on such funds.

This is the third time that the CBK has adjusted the cash reserve ratio for commercial banks this year as part of its efforts to mop up an estimated Sh25 billion pumped into the economy last year and early this year. The cash reserve ratio was about six per cent, at the beginning of the year and was raised to about eight percent in the middle of the year. Last month, the CBK raised the requirement to 10 per cent.

Click on link below for full article.

http://www.2shared.com/d...VV52CDn/02DN240993.html

This is the article I had alluded to in post 24; the CBK has paid interest on reserves before ... WOW.

Pardon my ignorance @Scubidu but isn't there something wrong with a country increasing it's debt at a faster rate than it's income? I get really worried when I see our ministers happily committing generations of Kenyans to debt for benefits which I highly doubt trickle down to the common man.

China Raises Bank Reserve Ratio as Foreign Holdings, Loans Jump

China’s central bank raised lenders’ reserve requirements within three weeks of boosting benchmark interest rates to rein in liquidity after the nation’s foreign- exchange reserves surged by a record last quarter and new loans breached a 2010 target.

Reserve ratios will increase 50 basis points starting Jan. 20, the People’s Bank of China said on its website today. One basis point is 0.01 percentage point.

The reserve requirement stood at 18.5 percent for the biggest banks before today’s announcement, excluding any additional restrictions imposed on individual banks and not publicly announced.

China may boost reserve ratios by more than 200 basis points in 2011, according to HSBC Holdings Plc economist Qu Hongbin. Industrial Bank Co. economist Lu Zhengwei estimates the ratio may reach 23 percent.

Read more:

http://www.businessweek....oldings-loans-jump.html

http://news.xinhuanet.co...11-01/14/c_13691129.htm

In this day in age, there are ways to avoid reserve requirements. Holding public auctions more frequently is an idea.

We have previously discussed RAMP Africa in various threads but let’s recap. RAMP Africa is a programme managed by the World Bank to enable Central Banks to management their reserve assets. Central Bank of Kenya (CBK) reserve assets include: SDR Holdings, Gold and Cash & Other Holdings.

These reserve assets are the one’s CBK uses to support the importation of goods as well as other stuff like make government payments for foreign bills. According to CBK the movement in official reserves was as follows:

Jun 08: USD 3.445 bn (Ksh 220 bn)
Jun 09: USD 3.219 bn (Ksh 243 bn)
Jun 10: USD 3.799 bn (Ksh 307 bn)
Oct 10: USD 4.063 bn (Ksh 328 bn)

However, if we look at the components of these reserves it reveals a more interest story as the composition dramatically different. The composition was as follows:

Jun 08: Gold (0.01%), SDR (0.09%), US Bonds (0.00%), Cash (99.89%)
Jun 09: Gold (0.01%), SDR (0.10%), US Bonds (9.32%), Cash (90.56%)
Jun 10: Gold (0.02%), SDR (8.55%), US Bonds (18.43%), Cash (73.00%)
Oct 10: Gold (0.02%), SDR (8.00%), US Bonds (25.23%), Cash (66.76%)

It is the changes due to RAMP purchases which should spark our interest because technically the statistics say that hard currency cash has taken a back seat to interest earnings assets.

In the last post we looked at the first objective of the RAMP programme; now we’ll focus on the second aspect of RAMP namely liquidity.

The USD denominated bonds bought are perceived to be extremely liquid and are tradable on a Luxemburg exchange. Between March 2009 to June 2010 usable reserves have grown from US$2,620 million to US$3,310 million, which represents only a US$690 million rise. So although we’ve built up over US$1 billion in reserves over 35% of those reserves are unusable.

At the same time the import cover has risen from 3.13 months in March 2009 to 3.49 months in June 2010 (based on 36 month average imports of goods and non factor services). This days CBK doesn’t even publish import cover based on this year’s imports, which has always been lower. But now coming to the issue of the foreign liabilities.

From June 2010 to January 2011 usable reserves rose US$178 million from US$3,310 million to slightly over US$3,488 million (but the same import cover of 3.49 months), but indicate that these reserves do not include encumbered reserves. They started adding in that last part in late December. Why are the reserves encumbered?; maybe because we haven’t paid for them. If we haven’t paid for them, then we can’t use them can we?

So won’t we need more hard currency to make these reserves usable because right now the only options maybe selling the bonds to meet the debts; but, then again World Bank doesn’t seem troubled that the bonds were not paid for on settlement dates, which implies that they are just as fine as some sort of collateral. Any sale should appear in our capital account as an inflow. Keep a look out.

Debt Update: Kenya's public debt is now officially up 20% or 263 billion in 2011. What was that GDP growth figure again?

And it only took us just under 7 months to beat the growth in public debt during the whole of 2010.

Debt to gdp is now 57% from 45% at the start of 2010. One and a half years and the ratio is up 12%.

GDP growth requires our import bill to delcine, but with the state of our currency that's looking hard (not to mention the fact that external debt is up a massive 35% in 2011 alone).

Bear in mind that we can keep consumption (thus GDP) up this year because inflation is high, but, we'll be messed up in the future as we'll have eroded most our savings.

Tighten your belts and be careful of the loan interest rates.

Scubidu-you've been MIA hope its for a good cause.
Yes, ile ndeni this mzee will leave us with is a work of ugly art. Imho, its easy to look good when you are splashing out but even when its on good projects, you still need to remember its borrowed cash.
Imho, our choice of the next president must be informed by:
Either we get a president with the strategy to grow the economy at 10% pa (without additional borrowing).
Or one who will help Kenya cuts its cloth accordingly.