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Chapter One


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This chapter covers background
information of the study, the statement of the problem,the general and specific
objecjives of the study, research hypothesis, significance of the study and
scope of the study.


A countrys currency plays a
crucial role in its economic growth

Problem Statement:

Kenya’s vision 2030 is aimed at ensuring that Kenya
achieves a middle income economy by the year 2030(Republic of Kenya 2013). However,
the Kenyan currency, that is, Kenya Shilling has been experiencing series of fluctuations
whereby it has been weakening at an alarming rate. Weakening currency as
compared to other international currencies such as US Dollar would be
detrimental to achieving necessary Gross Domestic Product growth in order to
put Kenyan economy to a better position. GDP had been aimed at 10% by 2030 (Republic
of Kenya, 2013).According to International Monetary Fund (IMF),in October
11,2011, Kenya Currency had hit a bedrock low of 107 Shillings per US Dollar .
This was an historic low that Kenyan currency had reached. This led to putting
up of measures by the Central Bank of Kenya that were thought to be better in
curbing the menace once and for all .This seemed not to auger because by early
2015,Kenya Shilling had also started showing signs of devaluation. This did not
seem to be the point of concern to many economic analysts since it seemed a
normal slip up. Nevertheless this persisted leading to crossing 100 Shilling
mark compared to US Dollar .Why does this seem to be a recurrent menace? Is it
because of ineffective monetary policies by responsible parties. Kenya’s
economy has been a giant economy for entire East Africa region but the rate the
currency stabilizes is worrying and might affect this dominance in near future.
In order to improve the efficiency of Kenya’s monetary policy, there is a need to
examine its impacts on currency stability. This would help in recommending to
the government, through the Central Bank, the kind of measures to enhance price
of currency stability in order to thrive in a prosperous economy. Such measures
include the use of real interest rates in form of price of liquidity and
reserved money which is the same as quantity of liquidity. Also, Repo rates is
another point of interest that would help in understanding the fluctuations as
exchange rates (CBK, 2010).




To determine
the impacts of monetary policy initiated by CBK on stability of Kenya Shilling   

1. To
determine the effect of Repo rates on currency stability in Kenya.

2. To
determine the effect of money supply on currency stability in Kenya.

3. To determine
the effect of real interest rate on currency stability in Kenya.


monetary policy affect currency stability in Kenya?

ii.       Does Repo rate
affect the stability of Kenya Shilling?

iii.    In which way does money supply influence stability of
Kenya currency?

iv.    Does real interest rates affect the stability of Kenya

Scope of the

This research
concentrated on the Kenya’s monetary policy in taking care of stability of its
currency .It sought to investigate its effectiveness whereby it has been
questionable of late how those policies and tools are effective in controlling
the stability of Kenya shilling. It covered a period of thirteen years, that
is, from 2004 to 2016.Monetary policy is the independent variable while
currency stability is the depend variable. It is based on the data from the
Central Bank of Kenya’s website and Equity bank secondary data.

Significance of the study.

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