Some os my friends took unsecured load 2 years ago at 14.75% payable within 5 years, What is their FATE?

argument well thought out. The CBK is ill equipped to target inflation. As many of you will attest to (based on the soft loans that friends have been requesting, number of harambees. goat eatings, consumers seemed to be facing a credit crunch as early as March this year). Whence the money responsible for distorting prices was coming from is a mystery to me. It does not feel like there is a lot of liquidity out there to be mopped up. Certainly, industries such as retail and construction will contract this quarter. Certainly in an economy where banks do not adjust deposit rates upwards but only adjust the lending rates, the effectiveness of increasing interest rates is questionable. Savvy consumers wont rush to deposit their liquid assets with banks (hence zero mopping of cash in form of bank deposits). Certainly liquidity will end up with the CBK in T Bills and Bonds. Unless this money is pumped into infrastucture projects (and we know how slowly absorption takes place), the economy will contract. How fast can treasury put the money in use, is the key factor in resolving the problem.

Banks as usual will refuse to increase deposit rates and resort to interbank/central bank borrowing. Should the CBK continue lending to banks? I have my reservations!

Well thought out... not really... he lacked info, and his solution was exactly inspiring.

He said "The obsession with the currency is just pointless. It's just a number. even the price of gold is declining. sometimes, its better to just do nothing."

He didn't know that the current a/c has now risen from US$2.5 bn in Jan to US$4.0 bn in Sep (short US$1 bn every quarter). That's what causes an exchange rate crisis. And all this during a time when the market is illiquid? The overall BOP dropped from US$199 mn to a deficit of US$220 mn in 9 months. The last time we had a deficit was in July 2009 and in August 2009 we received a general SDR allocation from IMF for BOP support (something many such as Kizee1 doesn't like).

So you want to defend an overvalued shilling... i mentioned all the methods CBK has used to do that, but how do you attract hot money? Forget doing nothing, didn't work well for governor... especially just before an election year.

But let's look at things in a simplistic way, so there has been no liquidity in the market since March, but for some reason banks deposit rates aren't rising. That indeed is strange; how do the banks survive. Somebody must be subsidizing them? And whoever is subsidizing them must be creating the inflation. So the answer is yes... CBK must continue to lend to banks cos no one else seems to be doing it.

Why don't they just issue a foreign bond.
Whatever our rating currently is he would still be able to get a cheaper rate without killing domestic borrowing and the economy.
Even with the greece default cloud hanging over our heads I am sure he would still be able to raise the money because everyone is holding on to cash and the other investments avenues are all very grim.
Issue a foreign bond(get you dollars), reduce the CBR(encourage domestic growth) increase import duties on non manufacturing, processed consumables(I know this is not CBK role but should be plan of the strategy, stop listening to world bank or IMF! Never listen to them f***ing devils!

Liquidity is skewed. Deposit rates are spiking for some folk (Tier 2&3) but not for others. Tier 1s that are expanding their balance sheets quickly like Equity and KCB feel the liquidity crunch but still enjoy cost leadership. The CBK must help the sector i believe that's why overnight is not pegged on today's interbank.