The Treasury set the stage for a faceoff on November 11 when it ordered all State agencies to forward surplus cash and Treasury Bills to it before November 12 with the CBK expected to remit between Sh25 billion ($250 million) and Sh27 billion ($270 million).
The cash directive was meant to ease a cash flow crisis in government, which has repeatedly failed to meet its revenue-collection targets, resulting in the overall funding shortfall.
On Tuesday, CBK Governor, Patrick Njoroge, however, flatly refused to budge and tow the government directive to surrender surplus cash and securities to the Treasury, stating such a move would be akin to printing money.
“If the government is short of revenues and wants in a sense to assault the CBK and grab whatever resources there are, that has never worked and will never work,” Dr Njoroge said at the Monetary Policy Committee press briefing on Tuesday, which lowered CBK’s base lending rate.
Dr Njoroge, who in recent times has not shied off in criticizing President Kenyatta administration, explained that State bailouts sought from central banks have never worked.
“Such bailouts monetise the deficit one to one which means the central bank prints money, it will be printing money to cover the deficit and would draw the central bank as a conspirator in fiscal decisions this will subordinate the central bank to fiscal decisions and political imperatives,” he said, Business Daily reported.
“If decisions are made in smoke filled rooms by people who want to send rockets to the sun they end up with those figures. We follow specific laws and we have been doing it for 54 years,” he said.
CBK trades in Treasury bills under its name to reduce or increase money supply in the economy.
“There were concerns that we also have been commanded to surrender T-bills that we hold. So just like Kenya oil or some parastatal we are thrown into this ring and forced to surrender. That couldn’t be further from the way things work, we do not operate under those sort of regimes,” Dr Njoroge said.