CENTRAL BANK OF KENYA
Opening Remarks by
PROF. NJUGUNA NDUNG’U
CHAIRMAN
FIRST MONETARY POLICY FORUM
Kenya School of Monetary Studies, Nairobi
Tuesday, 10th August 2010

First Monetary Policy Committee Forum 10/08/2010
Permanent Secretaries;
Heads of Government Parastatals;
Chairpersons and CEOs of Private Sector Organizations;
CEOs of Commercial Banks;
Scholars;
Distinguished Guests;
Ladies and Gentlemen:
It gives me great pleasure to welcome you here today for this very important
and inaugural Monetary Policy Committee (MPC) Public Forum. Before I make
my opening remarks, I take this opportunity on behalf of the Central Bank and
the Kenya Bankers Association to warmly welcome you all to the Kenya School
of Monetary Studies. Being the Chairman of the Monetary Policy Committee as
well as the Governor of the Central Bank, I am privileged to have a double
interest in the outcome of this forum.
As it is the practice for many Monetary Policy Committees in many central
banks the world over, such public fora provide important avenues for bringing
together key stakeholders to discuss how monetary policy affects them, to learn
about banking sector developments and the opportunities they present. In
addition, such a forum helps in the understanding of how finance supports
private sector activities and sensitize the public on the range of financial
services. While this is our First Monetary Policy Forum, it is not the first time
we have come together. At a previous forum in February 2009, we dealt with
the global financial crisis and its effect on Kenya and the required support from
banks. In August 2009 we foregathered again to consider inflation
measurement. In those two areas, I am happy to report that good progress has
been made. But we need to keep the forum active so that we agree on issues
and seek solutions to challenges that face us.
This public Forum comes at a time when the MPC has maintained a consistent
monetary policy stance directed at enhancing credit expansion in support of

First Monetary Policy Committee Forum 10/08/2010
economic growth. In response to successive cuts in the Central Bank Rate from
8.50 percent in December 2008 to 6.00 percent in July 2010, short term
interest rates i.e. interbank and Treasury bill interest rates have declined
dramatically from as high as 6.67 percent and 8.59 percent in December 2008
to 1.34 percent and 1.59 percent in July 2010, respectively. This has also
followed the global trend. Further, 23 banks as at July 2010, had reduced their
base lending rates. This is a good signaling mechanism. However, transmission
to lower lending rates has been slow. Lower lending rates are crucial to spur
credit expansion for investments that would yield high economic growth and
job creation as envisioned in the Vision 2030. In addition, high lending rates
increase the risk of default. To ensure that low lending rates regime gives rise
to the desired outcome, the private sector must seize the opportunity and
expand their investment with the available, affordable credit that is being
mobilised by the banking sector.
The theme of this meeting is “Lubricating the Economic Engine with
Adequate and Affordable Credit” and the agenda is designed to deliver
just that. You will have noted on the agenda that I am slated to talk on the
objective of this forum, but the objectives must start with the objective of
monetary policy.
Monetary policy in its most general form, shares a platform with fiscal policy on
macroeconomic management for economic development. Monetary and
financial policies achieve this through fighting inflation, creating a financially
stable environment and ensuring an efficient and effective national payments
system. From this menu you can see that stability and predictability in prices as
well as a stable and effective financial and payment system are important to
support enterprise growth. For all Kenyans, fighting inflation as well as
financial access is pro-poor. Financial access allows the poor accumulate
capital through savings and affordable credit.
This brings me to my second objective. The MPC would like to take this chance
to listen, interrogate and audit itself, as you – the financial and real sectors –
discuss ways of overcoming challenges, understanding market signals,

First Monetary Policy Committee Forum 10/08/2010
removing any obscurities and resolving market inefficiencies. Furthermore, we
are receptive to any feedback on the impact of previous monetary policy
decisions.
A third objective is much simpler but quite important moving forward.
Monetary policy, I am sure you agree, has created the right environment, we
want to urge you, the real sector, to go to the banks and negotiate for loans. The
loans, based on good investment proposals will support investment for wealth
and employment creation. This is what we all desire; I am sure the commercial
banks are waiting.
Ladies and gentlemen, it is our expectation that this meeting will be
characterised by open dialogue especially on these three objectives as well as
your take on the challenges we all face. We take this opportunity once again to
warmly invite your suggestions on how to improve the effectiveness and
efficiency of our monetary instruments as well as constructive proposals for
reform. This last point is particularly important since the reform agenda of
Vision 2030 is one that makes Kenya a dynamically efficient economy that
benefits from openness and hence competitiveness.
I cannot close these remarks without an explicit appeal to those of you from the
“fourth estate” – the media. The MPC has targeted mostly business writers so
that we can build capacity on issues we deal with. One of the most fragile
commodities in the market place is confidence. Confidence can be undermined
by misinformation. Once undermined or lost it takes ages and a lot of resources
to restore. Expectations are mostly self-fulfilling but we know there is an
adaptive learning process. The media, as responsible agents of change, can
challenge entrenched interest groups whose agenda fall far short of the
common good; while at the same time ensuring an appropriate flow of
information that is crucial for the market to process and hence support
formulation of effective solutions.
We at CBK have supported this line with new institutions to help market
players process information better and reduce the cost of doing business. Two

First Monetary Policy Committee Forum 10/08/2010
of these are the: Credit Reference Bureaus and Agent Banking. I look forward
to the media providing some feedback on how effective these will become over
time, and of course any pitfalls.
I once again underscore the importance of sharing information and insights in
shaping the conduct of monetary policy in this country. In this regard, we
believe information gathered from this meeting, drawing participants from all
sectors of the economy, will be critical in addressing challenges that have
constrained the effective transmission of monetary policy.
On behalf of the Central Bank and the MPC, let me express our sincere
gratitude to you all for responding to our invitation and gracing our
deliberations with your presence and we look forward to your contributions in
this meeting.
Ladies and Gentlemen, I now take this opportunity to declare this inaugural
MPC Public Forum officially opened.
I wish you all fruitful deliberations.
Thank You