A Disciplinarian Gets Another Term As Kenya’s Central Bank Governor

Kenyan monetary policy remains in the same hands.

A member of the Roman Catholic organization Opus Dei, Central Bank of Kenya governor Patrick Njoroge leads a life of order and discipline. Reappointed for a second four-year term beginning in June, Njoroge has been whipping the financial sector to operate similarly.

To a considerable extent, he has succeeded. Commercial banks have shored up their core capital and made risk-based lending a fundamental principle. Shaky banks are being reconstructed, while others, particularly government-owned institutions, are being acquired by competitors with stronger balance sheets. The Kenya shilling, the epitome of instability for years, has remained stable under Njoroge’s watch, during which speculation on the Kenyan shilling and the making of predictions that might spark panic-buying were suppressed.

On one matter, Njoroge would prefer more flexibility. A law passed in 2016 put a cap on interest rates of not more than 4% above the Central Bank Rate (CBR). Since then, Njoroge and his colleagues on the Monetary Policy Committee have been able to make only minimal adjustments to the CBR. In March, the High Court annulled the law.

“Njoroge understands that discipline is at the core of a sound financial sector,” says Ken Gichinga, chief economist at Mentoria Economics. Kenya harbors ambitions to become an international financial hub, but to do so it must shed its tag as a conduit for illicit financial flows—some of which finance terrorism.

While Njoroge’s previous term of office was widely regarded as a success, the first big initiative of his second term—demonetization—could make or break his legacy. Kenya has introduced new-generation currency and plans to withdraw the old 1,000 Kenya shilling ($9.72) note from circulation on October 1 to fight corruption; but the process is already facing headwinds, with two suits filed in court. The bigger concern, however, is how demonetization will affect the economy. A similar initiative in India in 2016 ignited a months-long currency crunch that cost over 1.5 million jobs and wiped out at least 1% from the country’s GDP.