Common cents

A few posts back I talked about the sweet high that was -and still is- sugar in Kenya. I compared it's retail price to that of South Sudan and informed you on how the sugar industry was running out of time to meet COMESA's conditions that will enable cheaper sugar.

Update: An application was made to extend COMESA protection. From what I've heard, they've been granted that extension til 2014. Quite unfortunate for us as we've been left at the mercy of the sugar millers.

Just when we speculated that life would somehow get better, the banks raised their rate yet again. Lending rates are now averaging 22% i.e. for every Kshs. 10,000 you borrow, you're paying back a total in excess of Kshs. 12,200. Those who had an ongoing debt payment plan are facing yet another increase in interest rates. According to the BusinessDailyAfrica, the Monetary Policy Committee's decisions were a carbon copy of the IMF’s recommendations made public a day earlier and which rooted for a tightening of monetary policy to limit credit to the private sector and to stop further slide of the shilling. This conclusion was made this past Monday (October 31, 2011). I find it sad that a whole country's money supply policy will revolve around recommendations that are not of our own making. We obviously need to reduce the circulation of our local currency, but to peg it to interest rates and Reserve Ratios is sappy. There has been little use of Open Market Operations.....specifically, government selling securities so that they reduce money flow.

A recently created tool is the Term Auction Facility, TAF in short. This basically allows banks to bid for a fixed reserve from the Central Bank. Instead of loosely dishing money to them in hopes that demand of foreign exchange decreases, CBK can have them bid against each other to see how much they're willing to pay to have those dollars with them. It can also be in the form of assets.Wouldn't they rather have a commercial bank hand in a chunk of the local currency in circulation than have them hoard it? Wouldn't this reduce money supply without stressing citizens and every other Kenyan student as much?? Or is the idolizing of profits that important that they forgot the poor citizens whose Kshs. 30 contributes more to the economy than the rich man's Kshs. 2.5M?

NB: Open Market Operations refers to the purchase and sale of government securities such as bonds, etc. Buying them off the government means you've given them your money in exchange for a given annual interest and repayment to you of principal amount on the final year. In short, you help decrease money currently circulating.

        Monetary Policy is a means via which the Central Bank of any country controls the supply and circulation of money in an economy. It's their mandate as allocated by their respective central governing body.