account deficit continues to exert pressure on the kenya shilling exchange rate. 6. over the past four months, the kenya shilling exchange rate to the us dollar has come under unusually intense pressure on account of a strong us dollar and enhanced seasonal corporate demands. the strengthening of the us dollar globally largely reflects the strong recovery of the usa economy, the uncertainty around the timing of the first interest rate increase in the us following the tapering of quantitative easing ( qe ), expectations of lower interest rates in the eurozone following adoption of qe by the european central bank in late january 2015, and bis central bankers ’ speeches the weak eurozone growth recovery. during the period, the kenya shilling exchange rate against the us dollar depreciated by 5 percent. at the global market it is quite volatile with many countries experiencing strong capital outflows. the nigerian naira ( 9 % ), uganda shilling ( 9 % ), tanzania shilling ( 4 % ), ghanian cedi ( 20 % ) and even the euro ( 11 % ) were hard hit. 7. what is the central bank doing to stem volatility? first, the bank adopted a tight monetary policy operations stance to minimise any likelihood of arbitrage activities between the interbank and foreign exchange markets – the average interbank rate now stands at 10. 4 percent. this is in excess of 250 basis points above the cbr. second, the bank continues to intervene in the foreign exchange market through direct sale of foreign exchange to commercial banks both to ease demand pressures and drain kenya shilling liquidity. in addition to dampening volatility, the interventions slowed down the rate of depreciation of the exchange rate. the bank also enhanced the prudential guidelines of banks on foreign exchange dealings to promote transparency and safeguard the integrity of the financial market. the bank has and will continue to actively use moral suasion with the banking industry to stem expectations. 8. going forward, the intense seasonal demand pressure on the kenya shilling exchange rate is slowly dissipating though there is evidence of speculation in the foreign exchange market. in response, the bank will scale - up omo to tighten liquidity further to stem expectations. the resilient diaspora remittances and recovery of the global economy will support exchange rate stability. in addition, the central bank ’ s foreign exchange reserves coupled with a precautionary facility from the imf are adequate to stem volatility

. the central bank will continue to monitor developments in the foreign exchange market but allow genuine demand and supply factors to determine the level of the kenya shilling exchange rate. finally, measures to promote exports including foreign direct investment are critical to the long term stability of the kenya shilling exchange rate. 9. in closing, let me take this opportunity to thank the over 300 private enterprises that responded to the year 2013 foreign investment survey questionnaires. the response rate of 75 percent was impressive and we look forward to better this performance in this year ’ s survey. the time spent building this critical information base is for our mutual benefit and the people of kenya. 10. it is now my pleasure to invite the cabinet secretary, national treasury to make his remarks and official launch the 2015 foreign investment survey. thank you. bis central bankers ’ speeches