CBK faces pressure over US tariff, currency manipulation claims

Central Bank of Kenya’s Monetary Policy Committee (MPC) convenes today for a closely watched meeting, with the fallout from a 10 per cent reciprocal ="http://www.standardmedia.co.ke/financial-standard/article/2001515804/jitters-over-trumps-10pc-tariff-as-data-shows-dip-in-epz-jobs"> tariff imposed by the Trump The MPC, chaired by CBK Governor Kamau Thugge, will weigh various economic factors to determine its monetary policy stance aimed at maintaining price and macroeconomic stability. 

However, the shadow of Washington’s tariff and the accompanying renewed allegations of currency manipulation hang heavy over the deliberations.   

On April 2, Trump announced a ="https://www.standardmedia.co.ke/entertainment/opinion/article/2001515645/trumps-tariffs-on-kenyan-exports-further-weaken-a-wobbling-economy">blanket 10 per cent tariff on all goods< going into the US.

He also added new duties on goods from 185 countries including Kenya which the president described as the “worst offenders” in terms of perceived unfairness on trade, slated to kick in on April 9.

Among the reasons the US cited when it hit different countries with the tariffs included currency manipulation. Washington has repeatedly stressed the need for Kenya to “avoid manipulating exchange rates,” a pre-condition for any future trade agreement. 

Trump’s administration last week renewed these concerns, alongside trade imbalances, to justify the tariffs. “The Secretary of the Treasury is required to assess the policies and practices of major US trading partners with respect to the rate of exchange between their currencies and the United States dollar pursuant to section 4421 of title 19, United States Code, and section 5305 of title 22, United States Code,” said a brief from the White House.

“The Department of the Treasury will strengthen its ongoing currency analysis and address the lack of transparency by foreign governments in currency markets.”

The US administration first raised concerns about Kenya’s currency practices during Trump’s initial term in 2020.

Its renewed assertion has placed Kenya on a list of nations under scrutiny for currency manipulation. Trump directly linked the 10 per cent Kenya tariff to this alleged practice. 

He said the reciprocal tariffs will be calculated by combining the rate of tariffs and non-monetary barriers such as currency manipulation, and then dividing that total in half.

The US had previously demanded that Kenya commit to ending the alleged manipulation as a precondition for supporting a new free trade agreement that is being negotiated between the two countries. 

US law mandates the US Treasury to engage in special negotiations with nations deemed to be undervaluing their currencies.

Trade pact

In the now botched Trump-era trade negotiations, Washington’s specific negotiating objectives for the trade pact explicitly include a provision to “ensure that Kenya avoids manipulating exchange rates in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage.”   

The currency manipulation claim and the resulting tariff are likely to test relations between Nairobi and Washington, particularly with the current trade framework under the African Growth and Opportunity Act (Agoa) that is set to expire in September. 

CBK has consistently denied targeting the shilling’s exchange rate, stating that its interventions in the foreign exchange market are solely aimed at smoothing out volatility. 

The Standard could not immediately reach the National Treasury or the CBK.

The shilling has traded steadily around 129 units against the dollar for the last six months.

A weaker shilling increases the cost of Kenya’s imports, including fuel and vehicles.   

CBK does not publicly disclose its activities in the money market, making it difficult to ascertain the extent of its interventions, if any, when the shilling faces downward pressure.

This is not the first time the CBK has faced such accusations. In 2018, the International Monetary Fund reclassified the Kenyan shilling as an “other managed arrangement” from “floating,” alleging an overvaluation of the real exchange rate, claims vehemently rejected by CBK.   

US law outlines criteria for identifying currency manipulation, including a significant global current account surplus, a substantial bilateral trade surplus with the US and persistent one-way intervention in foreign exchange markets.  If a country is designated as a manipulator, the US Treasury is required to seek corrective action, with potential penalties including exclusion from US government procurement contracts.

While the former Biden administration’s Treasury Department concluded in November 2024 that no major US trading partner manipulated its currency, the Trump administration has raised concerns about the issue, including against China and the European Union.