The Independence Of The Central Bank Of Kenya: A Review Of The Legal Framework

Abstract

Central Bank Independence refers to the freedom of monetary policymakers from direct political or governmental influence in the conduct of policy. The principle of Central Bank Independence or autonomy concerns itself with direct control that a government has over the functions and decisions taken by a central bank. Central Bank Independence can either be absolute where a central bank enjoys complete freedom from government influence or control or may be none existent where the central bank is dependent on the government. The principle of central bank independence has been at the centre of legal reform in many countries which seek to amend the laws on central banking to increase the degree or the level of autonomy of their respective central banks. Central bank Independence gained momentumparticularly because of the performance of the German economy as a consequence of the model adopted by the Bundesbank as well as the empirical evidence that showed that there was a direct link between increased central bank autonomy and reduced levels of inflation. A high level of central bank independence is considered as one of the factors required by a country to achieve price stability or low inflation and governments are for this reason motivated to enhance the autonomy of their central bank. Available literature on central bank independence indicates that there is a relationship between the level or degree of independence a central bank enjoys and the economic performance of a country