njuguna ndung ’ u : the role of the central bank of kenya in kenya ’ s economic transformation talking notes by prof njuguna ndung ’ u, governor of the central bank of kenya, at the nesc workshop on the role of central bank in economic transformation, kenya school of monetary studies, nairobi, 29 may 2007. * * * hon. amos kimunya, minister for finance, republic of kenya amb. francis muthaura, permanent secretary, head of civil service and secretary to the cabinet, permanent secretaries, mr. byung hwa kim, deputy governor, bank of korea, mr. muhammad ibrahim, assistant governor, bank negara malaysia, mr. hemraz oopuddye jankee, director of research, central bank of mauritius, distinguished guests, ladies and gentlemen i take this opportunity to warmly welcome you all to the kenya school of monetary studies. it is also a pleasure to specifically welcome our esteemed visitors from korea, malaysia and mauritius who have joined us on this occasion. i also wish to thank the national economic and social council ( nesc ) for their effort so far in developing the vision 2030 that provides a roadmap for kenya to attain middle income status by the year 2030. the vision, as we have witnessed presented is well thought out. but there are still some building blocks required and this forum is one of those. the importance and significance of it is to situate the role of central bank into the vision. the central bank of kenya is a key institution in this vision and like other key institutions, should learn from other successful countries. central banks in the eastern african region seem to face similar challenges – but the important role the cbk is expected to play in the vision 2030 is critical but some challenges are evident : • effectiveness of monetary policy instruments and fighting inflation. • thin markets ; foreign exchange and financial markets. • problems of exogenous shock particularly those arising from bad weather and volatility in oil prices complicates for price stability. • financial sector stability in a global setting. this workshop is timely and provides an opportunity for the cbk to re - evaluate its role in the kenyan economic transformation in the context of the vision 2030. i will come back towards the end to tie up what experiences the cbk will learn and adopt from the experiences of those successful cases. ladies and gentlemen, let me wish you productive deliberations and hope that we will find the

exactly the new normal looks like is still being analyzed and discussed at the fed. we have indicated that we plan to shrink the balance sheet to the smallest size consistent with the efficient and effective conduct of monetary policy, and that, in the long run, the asset side of the balance sheet will consist primarily of treasury securities. 9 that ’ s our strategy, but its execution will depend on the operating framework of monetary policy, among other factors. here, the fed basically has two choices. we could return to a system similar in spirit to that used before the financial crisis, in which the supply of reserves in the banking system was kept relatively scarce, and the interest rate was set by adjusting reserves on a frequent basis through open market operations. alternatively, we could continue with the system that we ’ ve been using since the crisis, in which bank reserves are abundant and the federal funds rate target is achieved through adjustments to administered rates. as i said, this approach is working very well at controlling interest rates and has proven to be easy to communicate and adaptable. 10 the fed will be looking closely at these options in the coming months and will subsequently make a decision on the future operating framework. and, as is our standard practice, we will be sure to communicate our thinking and decisions on this issue as soon and as thoroughly as practicable. conclusion monetary policy - making has perhaps never been more challenging than it was following the financial crisis. but, as we move toward more “ normal ” conduct of monetary policy, we shouldn ’ t rest easy and think we won ’ t confront our own fair share of future challenges. the most important one in front of us today is sustaining the long economic expansion without allowing risks to grow that ultimately undermine economic prosperity. whatever the future may bring, i will be guided by our dual mandate, a heavy dependence on data, and a steadfast commitment to transparency. thank you. 1 1 see fomc statement and implementation note, september 26, 2018. 2 2 see minutes of the federal open market committee, march 17 – 18, 2015. 3 3 see fomc communications related to policy normalization, and simon potter, money markets and monetary policy normalization, april 15, 2015. 4 4 see fomc statement and implementation note, september 26, 2018. 5 5 see fomc issues addendum to the policy normalization principles and plans, june 14, 2017. 6 6 see simon potter, confidence in the implementation of u. s