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Adjustment and liberalization in Kenya: the financial and foreign exchange markets

✍ Scribed by Njuguna S. Ndung'U; Rose W. Ngugi

Publisher
John Wiley and Sons
Year
1999
Tongue
English
Weight
207 KB
Volume
11
Category
Article
ISSN
0954-1748

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✦ Synopsis

The paper analyses the impact of liberalization on two key and interrelated markets in Kenya, the ®nancial and the foreign exchange markets. It is shown that the in¯ation pro®le changes with exchange rate policy, interest rates have not been market determined even after liberalization, interest rate spreads have increased with liberalization, a re¯ection of ineciency in the ®nancial market, while foreign and domestic interest rate dierential and short-term speculative capital in¯ows aect the real exchange rate. The policy con¯ict of targeting a competitive exchange rate and low in¯ation with interest rate as the only instrument is shown to lead to a policy dilemma and to complicate macroeconomic management in the 1990s in an environment where ®scal adjustment has not taken place.

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