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Measuring The Independence of CBK

26 Mar

A central bank is said to be independent if it has the freedom to pursue its monetary policies without political or other external influences. The central bank of Kenya has struggled with achieving fully independence from the influences of both the politicians and and the government technocrats who wants to oversee its operations.
An independent central bank promotes:
1. Macro-economic stability
2. Orderly Economic Growth
3. A stable regulatory Environment.

The Central Bank of Kenya has failed in its quest to achieve all the 3 mentioned macro objectives, does it mean that CBK is still being controlled by some unseen hand?
The main measures of independence includes:
a) Instrument Independence-freedom to pick appropriate policies to produce a certain outcome in the economy. The choice of OMO-open market operations, change of CBR, Reserve ratio requirement
b) Legal Independence CBK independence should be enshrined in law, this form of independence is limited in Kenya  since CBK is accountable at some level to a government official be it the PS ministry of finance, the minister for finance or the president.
C) Goal Independence  freedom to select objectives of monetary policy whether it be low inflation, the target rate of unemployment, the level of GDP. The CBK has the right to st its own policy goals, whether inflation targeting, control of money supply or maintaining a fixed exchange rate.
d) Operational Independence  the central bank should have the freedom to determine the best way of achieving its policy goals, including the types of instruments used and the timing of their use.
e) Management Independence- The authority to run its own operations(appointing staff, setting budgets, and so on) without excessive involvement of the government. The turn-over-rate of cbk governors can give us a clue on its Independence.
If a government is in the habit of appointing and replacing the governor frequently , it clearly has the capacity to micro-manage the central bank through its choice of the Governors, The governor should have a substantial term of office.
I guess you’ll concur with me CBK has not fully achieved its independence.

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2 Comments

Posted by on March 26, 2013 in Banking, CBK, economics, Financial, kenya

 

Tags: , , ,

2 responses to “Measuring The Independence of CBK

  1. Lemein Kishoyian

    March 27, 2013 at 12:15 pm

    I truly concur with you and I think the major problem is the entire senior management. The governor once did say during a recent t.v interview over the issue of the recent dollar/shilling rates that he never applied for the job!! That he was called to come and take the job so he’s according to him never applied for it because he had no credentials!!! This according to me is one of the major problems within the CBK. The current rates ( L.R n C.B.R) should set to a level where it make it possible for the commercial banks lower their rates especially on their products to the common mwananchi!

     
    • whesongerwealth

      April 16, 2013 at 8:17 am

      And without the independence we shouldn’t expect much from CBK

       

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