Scubidu wrote:erifloss wrote:tutebeng wrote:CBK has been failing with respect to monetary policy for almost a year now, but most importantly, there is no theoretical link between the causes of inflation and interest rates, and therefore it is no wonder that the increases in the CBR will have many more undesirable consequences than deal with rising inflation. That said, I would not favour a Euro-bond-given our balance of payments position- which is anything from favourable. The answer lies in pursuing mixed economy policies. Manage credit to certain sectors, restructure OMO and reduce inter-mediation role of banks and craft out a set of new taxes-particularly capital gains tax etc. There is no reason to stifle credit to industry in light of the high levels of unemployment in the economy.
Restructuring OMO will be the best thing. Increasing the CBR is a double edged sword coz though theoretically inflation is being driven out, status quo remains as its replaced by increased lending rates lumped on consumers. Blame is not only on Ndung'u but guys at FinMin as well. Why not instead of only the 100% ID on new investments they add an incentive of lets say 20% Corporate tax for 3-5yrs for new FDI's China style and reduce the number of licences required + create a one stop shop for the same sort of the IPC but on a grander scale like other countries economic centres. I think with this we'll attract more FDIs and get the Forex we really yearn for, create the much needed employment, if manufacturing firms set up shop we'll partly have reduced our imports etc. What MPC is doing is basically killing SMEs who have been as of recent the economic drivers and employers.
Interesting ideas. What's wrong with OMO the way it works now?
1. Reduce the minimum amount one can invest to around 10-20k. This will capture the Wanjikus who went to the NSE during the bull run and make the banking sector more competitive in terms of chasing for deposits making the spread come down.
2. Kenya being a 'developing economy', if 1 above is done then the real effects of OMO will be felt because the small time savers will rush to make a kill. This reduces real inflation as it will truly reduce consumption and mop up cash from Wanjiku.
3. OMO as constituted today is more reactionary rather than a pro-active measure. Look at T bill rates in Jan-June compared to now vis a vis inflation rates and T bills auctioned in the market.
4. Liquidity of T bonds in the secondary market is a big boys play ground especially financial institutions making it almost impossible to use moral suasion on banks.
5. Look at the HRM rates in Jan-July and compare them to last month's, a whooping 40% and the amount transacted in the same period.
6. They should include non-financial players in the repo market to reduce financial institutions persuasion in the market.
7. OMO should be used together with the other monetary policy tools to achieve the maximum market reactions required/expected. In Kenya as now we are too much reliant on the CBR.
8. Sovereign bond.
'They say money cannot buy me happiness but when i compare when i had none and now, i'm happier' Kevin O'leary