Standard Chartered released an economic outlook report for Kenya this year and one of the things it said was that the Central Bank will reduce the CBR to 10 per cent by the end of the year. Is that something you see happening?

The policy rate is at 11.5 per cent today. Its reduction depends on the outcome. The monetary policy committee is data driven; and we don’t have a target, but rely on the market forces. I don’t think we are in the business of making predictions, as circumstances of the market. I am actually pleased that there in a growing discussion out there about economic prospects.

You say you are troubled by the increases commercial lending rates by the big banks. What rate would spur the growth of the economy?

I don’t have a good model for that. We have seen a rise in the rates say from 15.7 per cent last August to 17.5 per cent. The direction for us is clear: We expect the rates to come down. Also the spread at 9.7 per cent, compared with our peers, is very high. We want this to come down so that it can spur growth. I will be talking to commercial bank chief executives about this.

Your moratorium on new banks is still in place. When will it be lifted?

We don’t have any timeline. However, we expect it to be temporary. The reason for the moratorium was to create space to strengthen bank supervision and renovate our systems internally. Once we are done with this, we can lift the moratorium. We are already on the path of strengthening the supervision in terms of people, systems and processes.

We have advertised for positions and contacted our partners to audit and improve our systems and processes. We also expect commercial banks to strengthen their own business model.

Are you worried about the levels of credit risk out in the market?

We are not worried about the levels of credit risk. We have seen the levels of non-performing loans pick up in some banks. We know the reasons and the banks involved and are in talks with them to address the situation. We are telling them to put measures in place so that we are not in trouble in five years.

When it comes to credit risk, there are two things that we need to look at: First is do the banks have a good lending policy? This is something we look at when we do on-site inspection. The second element is governance. In a sense, it begins with initial lending and the due diligence done by the banks. Then we also look at the performance of the loan.

In our MPC statement, we stated that the bank’s liquidityhas improved since November. Nevertheless, the CBK continues to monitor the sector, particularly liquidity and credit risks.

The shilling has been stable over the past three months. What do you attribute that to, and are you worried about future risks?

Maybe we should ask ourselves why the shilling was unstable. One reason was market indiscipline. Banks were not following procedure. There was also hype from people who were pushing the rates up. We have tightened up and have come to an understanding with the banks.

We can confidently say that we are closer to the fundamentals. The current account is narrowing and there are better prospects ahead.

What’s your current account deficit projection for 2016?

We are projecting it at 8.8 per cent, relative to 10.4 per cent in 2014, but it’s tentative. We need to tighten up so that it comes down. For instance, our 2015 projection was 8.5 per cent. We need to appreciate the fact that the standard gauge railway imports were in the order of 1 per cent of the current account.

Now that we have fully engaged the project, when you remove the element of SGR imports, we expect the current account deficit to narrow. We also expect the government to reduce its fiscal deficit.

Last week, the MPC retained the Kenya Bankers Reference Rate (KBRR) at 9.87 per cent, although it was expected to increase. Has the Central Bank therefore changed the formula for the calculation of the KBRR?

The Central Bank is supposed to review and announce the KBRR through the MPC. We are supposed to review this every six months. If the conditions in the market do not allow us to review it after six months, then we do it earlier. At the last MPC review: looked at what the outcome of increasing it would be. So we decided to retain it to maintain market stability. Using the set formula, had we calculated and increased it to 10.78 per cent and with inflation being where it is, we would have destabilised the market. We cannot make decisions that mechanically lead to instability.

Will the Central Bank initiate a process that leads to criminal charges for those who perpetrated the Imperial Bank fraud?

The process of assigning culpability and responsibility is ongoing and we must ask for patience. Aside from the investigative arms, we have provided forensic auditors and other resources to ensure that we bring them to book. We are also doing internal investigations to look into the systems lapses.

We want to learn lessons from our failures, do our bank supervision differently. On the other hand, if indeed there were people from our end involved in this, then we will take action against them.

We also need to look at the auditors who didn’t raise the red flag over the discrepancies at Imperial Bank. We have told all auditors to review and provide information to the central bank about their information technology systems, which was one of the weak areas at the Imperial Bank.