Effectiveness of Monetary Policy as a Tool for Controlling Inflation: A case of Kenya

Kenyatta University

A research project submitted to the School of Economics, in partial fulfillment of

the requirements for the award of a Bachelor of Economics and Finance Degree of
Kenyatta University.

Abstract
Various studies have reflected the existence of a positive relationship between the
increase of money supply and the level of inflation. Generally, this is reflected by the continued
rise of prices of the various products. A situation ensues where excess amounts of money tend to
be chasing too few goods. In this perspective, this study tested on whether monetary policy is an
effective tool in the combating of inflation. The data utilized was derived from Kenyas
economic situations over a range of years. The period in perspective was that between the years
2001 and 2010. During this period, Kenya faced various catastrophic economic events. Some
instances of political instabilities, depressions, and economic recessions were vividly witnessed.
In addition, the level of inflation was at an all-time high. During this duration, various monetary
policies and tools were utilized by the Central Bank of Kenya. As such, this range was most
suitable for this research. The research used ordinary least square model (regression model) in
the endeavor. The research found out the money supply has a direct impact on the level of
inflation. Statistically, money supply has a statistical significance on the level of inflation in the
country. Thus, monetary policies aimed at controlling the amount of money supply in the
economy, have a tremendous impact on controlling the level of inflation.

ABBREVIATIONS
M - MONEY SUPPLY
P - PRICE
USD - UNITED STATES DOLLAR
T - TRANSACTIONS
CBK -CENTRAL BANK OF KENYA
GDP - GROSS DOMESTIC PRODUCT
IT - INFLATION TARGETTING
V -VELOCITY OF CIRCULATION
BOP -BALANCE OF PAYMENTS
CPI -CONSUMER PRICE INDEX

Contents
1.0 CHAPTER I..........................................................................................................................................1
1.1 Introduction...........................................................................................................................................1
1.2 Background Analysis.............................................................................................................................2
1.2.1 Monetary Policy Instruments..............................................................................................................6
1.2.1.1 Interest rate policy.......................................................................................................................6
1.2.1.2 Minimum liquidity asset ration....................................................................................................6
1.2.1.3 Open Market Operations..............................................................................................................6
1.2.1.4 Selective Credit Control...............................................................................................................7
1.2.1.5 Inflation Targeting.......................................................................................................................7
1.2.2 Failure of Monetary Policy in Developing Countries.........................................................................8
1.3 Problem Statement...............................................................................................................................10
1.4 Purpose................................................................................................................................................10
1.5 Research Questions..............................................................................................................................11
1.6 Objectives of the Study........................................................................................................................11
1.7 Significance of the Study.....................................................................................................................12
1.8 limitations............................................................................................................................................12
CHAPTER II.............................................................................................................................................13
2.0 Literature Review................................................................................................................................13
2.1 Introduction.........................................................................................................................................13
2.1.1 The Classical Quantity Theory of Money.....................................................................................13
2.1.2 Keynesian theory........................................................................................................................14
2.1.3 The Monetarist Policy Theory......................................................................................................14
2.3 Specific Literature...............................................................................................................................15
2.2 General Literature................................................................................................................................17
3.0 CHAPTER III: Research Methodology...............................................................................................20
3.1 Introduction.........................................................................................................................................20

4
3.2 Research Design..................................................................................................................................20
3.3 Model Specifications...........................................................................................................................20
3.4 Definition and Measurement of Variables............................................................................................21
3.5 Study Area........................................................................................................................................21
3.6 Ethical Consideration..........................................................................................................................22
3.7 Target Population...............................................................................................................................22
3.8 Data type and source............................................................................................................................22
3.9 Data collection..................................................................................................................................22
3.10 Data cleaning, coding, editing, refining and inputting.......................................................................22
3.11 Data analysis......................................................................................................................................23
CHAPTER IV: DATA ANALYSIS AND PRESENTATION....................................................................23
4.1 Descriptive Statistics...........................................................................................................................23
4.2 Substantive Objectives.........................................................................................................................29
4.2.1 To establish the relationship between money supply and inflation................................................29
4.2.2 To find out the effectiveness of monetary policy in combating inflation......................................30
4.3 Data Analysis and Interpretation..........................................................................................................30
CHAPTER V: SUMMARY AND RECOMMENDATIONS.....................................................................33
5.1 Summary.............................................................................................................................................33
5.2 Conclusion...........................................................................................................................................33
5.3 Recommendations...............................................................................................................................34
5.4 Further Research..................................................................................................................................35
Bibliography..............................................................................................................................................36
APPENDIX A: Data Capture Template.....................................................................................................39

1.0 CHAPTER I
1.1 Introduction
Since time immemorial, inflation has always been an issue of extreme sensitivity. This
accrues to the fact that a case of inflation has overall effect on the prices of commodities. An
instance of spiraling, uncontrollable inflation is usually a sign of impending catastrophic doom.
Thus, the control of monetary policy has turned out to be an essential function of all
governments in the world. Inflation does not necessarily have to be reflected a continued
increase in the prices of commodities (hyperinflation), the vice versa can also be a reflection of
inflation (deflation). However, both situations are more than unhealthy for the economy. In most
economic situations, the major reasons for the inception of inflation is a culmination of excessive
demand for products. The necessary economic policy would thus be entrenched on looking at the
causes of an unnecessary rise. This way, they can thus be able to come up with the right
measures that can aid in controlling the existing overall demand in an economy. An epitome of
this can be the control of cost-push inflation where cost is deciphered as the sole reason for an
increase in demand of both services and goods. The cost of production can then be checked so as
to combat problems related to inflation.
To this end, various researchers have established the ability of monetary policy as a tool
for controlling inflation. All over the world, in diverse economies, monetary policy has been seen
as an approach to effectively control inflation. This is reflected by the ability of monetary policy
in controlling the rise in demand by an increase in the available rates of interest. In addition,
monetary policy reduces the existing real money in the economy. A rise in the interest manages
to bring an overall reduction in collective demand in an economy. To this end, this paper aims at
looking at how effective monetary policy as a tool for controlling inflation; a case by case.

1.2 Background Analysis

Monetary policy is defined as a public interventionist action that aims at manipulating the
level and array of economic activity so as to accomplish specific, desired goals. Specifically,
monetary policies are aimed to work under two economic variables that affect the level of
inflation in an economy. The two aggregate variables are supply of money in circulation and the
respective interest rate in an economy. Monetary policy is among the few tools that a national
government can utilize to control the economy using the given monetary authority in the control
of the supply and availability of money. Controlling the availability, leading to a control of
access, ultimately influences the demand of products. The law of demand ultimately reflects that
an increase in demand for products of products leads to an increase in prices. Demand is in turn
influenced by the availability of money in the economy. Thus, direct or indirect control of money
leads to an ultimate control of inflation.
In most instances, governments try to influence an overall level of economic activities to
be in line with individual objectives. Some of these objectives include sociocultural, political,
economic, and technological objectives. Generally, the main aim of governments is the existence
of a macroeconomic stability. Usually, macroeconomic stability encompasses stable prices,
economic growth, full employment, balance of external payment, and development in a country.
Generally, it is the job of the central bank of any nation to come up with, and implement,
monetary policies that aim at achieving stability in the expected price level of products in a
country. However, the major aim is to attain stability in prices so as to be able to sustain the
existing value of the currency in a particular country.
On the other hand, inflation refers to a persistent rise in the general price levels in an
economy. The most common instance of inflation is usually the creeping form of inflation.

Creeping inflation mostly occurs when price levels continue to rise at a level between 1 percent
and 6 percent. In some instances, inflation manages to rise at an alarming rate reflected a 3 or
more digit count. This type of inflation is referred to as hyperinflation. An epitome of
hyperinflation was that that occurred in Kenya in the 90s. During this time, there existed a
perceived three months annualized rate that managed to reach a three digit figure of 101.1
percent in June 1993. A case of hyperinflation leads to adverse consequences being witnessed in
the capital, commodity, and money markets. All this end up affecting the goal of ensuring price
stability in a negative form. A case of suppressed inflation refers to a scenario where the existing
demand exceeds the supply but an effect on prices is minimized. Normally, minimization of
prices, in the case of suppressed inflation, is managed through the use of instruments that include
rationing and price control. With respect to the above information above, monetary policy can be
utilized to achieve a variety of objectives. In the case of this study, the focus will be on the use of
monetary policy as a tool for the control of inflation, and hence control prices in a country;
Kenya.
All economies of the world endeavored to create a central bank as a means of
safeguarding the value of individual currency. In the case of integrated economies, there exists
geographical banks and one major bank for the respective organization. For example, various
American states have federal banks to check on their currency. In addition, an overall control is
exhibited by the Central Bank of America. Instances of increased prices for products leads to a
diminishing value of currency. The reduced value is reflected by a reduction in the amount of
products that a currency can buy; as opposed to previous ability of the same currency. This can
lead to an incidence where citizens of a country end up losing faith in their currency and opt to

explore other means. Among the alternatives that individuals engage in include barter trade,
holding of value in assets, or the utilization of other stronger, foreign currency.
In retrospective, inflation has a huge impact on the balance of payment. The impact is especially
felt in cases where there exists a fixed exchange rate system. This leads to a situation where
exports end up becoming expensive and less an edge of competitiveness in the foreign market. In
addition, imports become less expensive and attractive. Also, inflation deters economic growth
as it increases uncertainty and end up discouraging savings through real interest rate. The real
interest rate is usually equal to the nominal interest rate minus the existing inflation rate. In
addition, long term investments are detoured from happening. This is because inflation manages
to distort availed planning by investors. Also, inflation leads to an arbitrary redistribution of
income where those incomes fixed on monetary term experiencing a fall in real incomes. Debtors
end up gaining due to the reduced value of currency while creditors lose their money. However,
sometimes mild demand pull inflation can lead to a situation where higher investments exist
leading to higher employment. Overall, inflations negative effects far outweigh the derived
advantages that accrue from it hence a dire need for strict control of inflation.
In addition, monetary policy is a major tool exploited in a battle of preserving a currency
in an economy. It usually involves the control of existing liquidity in circulation in an economy
to levels perceived as consistent with the needed growth and price objectives established by a
government. The volume of liquidity in circulation influences the prevailing rate of interest and
thus the relative value of the local currency against other currencies. It is the responsibility of the
monetary committee to formulate the monetary policy of the central bank of Kenya. Maintaining
price stability is a crucial affair for the proper functioning of a market based economy. The
existence of price stability goes a long way in encouraging long-term investment and stability.

Low and stable inflation rates refer to a scenario where price levels have no adverse effect on the
decisions of producers and consumers.
In this case, price stability is a prerequisite for the achievement of a wider economic goal of
sustainable growth and employment. The amount of money in circulation, and the prevailing
productivity of various sectors, tend to influence the amount of money in circulation in an
economy. The central bank of Kenya strives to regulate the overall growth of total money stock
level to a state consistent with predetermined economic targets. Usually, the predetermined
economic targets are set by the government. They are then outlined in a monetary statement. In
this scenario, monetary policy is used to control inflation caused by excess supply of money and
excess credit expansion, hence it takes the form of contractionary policy with an aim of
controlling prevailing excess supply and credit expansion.
1.2.1 Monetary Policy Instruments
There exist a variety of monetary policy instruments that can be utilized in the control of
inflation. Some of these tools include the following:
1.2.1.1 Interest rate policy
This arises where the central bank increases the rate of interest rates for borrowing funds. This
instrument is most applicable in cases where banks turn to the central banks as an avenue of
securing funds. The rate that can be increased include the overnight borrowing rate. This tends to
discourage borrowing which then end up reducing the rate of inflation in an economy.
1.2.1.2 Minimum liquidity asset ration
The liquidity asset ratio is defined as the proportion of total assets being held by a bank. This is
usually in the form of liquid assets and cash. This instrument is effective since it manages to
indiscriminately affect all banks. Also, the method tends to be directly established and the effects

10

of its implementation are felt soon after its inception. The intended purpose of the tool is usually
to create a situation where a banks free cash base is reduced. This reduces a banks ability to
give our loans and advances and creates an overall reduction of availability of money. The
reduction of excess money supply ends up curbing prices and inflation.
1.2.1.3 Open Market Operations
Open market operations refer to the sale or purchase of securities. The transactions usually take
place in the open market of the central bank. This instrument usually targets the available cash
balances of commercial banks and other non-bank institutions. The available balances are
checked in relation to excess reserves available at the central bank. The major aim of this tool is
the attainment of a predetermined level of reserve money. A situation of influenced commercial
bank lending ensues hence an overall control of money supply in the economy.
1.2.1.4 Selective Credit Control
These instruments prevails on the quantitative measure of credit control that strives at
encouraging selective essential sectors of the economy while at the same time discouraging
others. In one such instance, the Central Bank of Kenya can ensue to restrict government
borrowing up to a given extent. Normally, the given legal limit is 5 percent of the most recent
audited government ordinary revenues. Usually, this aims at reducing a case of excess
government expenditure. A case of excess government spending leads to a situation of
inflationary crisis.
1.2.1.5 Inflation Targeting
This is an economic monetary inflation policy aimed at achieving a specific level of inflation in
the country. This involves the setting of a certain level of inflation by the central bank, and then

11

working towards achieving the given level of inflation. This is usually done through the
utilization of interest rate changes and other monetary tools.
Despite the embracing of the above monetary policies, many countries still find themselves being
faced by extreme inflation rates. The rates end up eroding the value of the specific currency. A
devaluation of currency ends up creating an unfavorable balance of payment and hence a
culmination of debts and deficit budgets. In this perspective, third world countries continue to
remain poor despite their rigorous endeavors aimed at escaping the unfavorable economic
situation.
In times of political tumult, monetary policy also tends to be ineffective in cases of political
turmoil. The matter is further aggravated when political instability combines with economic
shocks. This leads to a culmination of extreme inflation being witnessed in a country. An epitome
of this was witnessed in Kenya during the post-election violence of 2007/2008. The prices of
basic commodities soared to the extent that they were virtually impossible to the average man. In
addition, the monetary policies set out to correct out the situation ended up being ineffective in
the control of the ensuing inflation. Economic shocks such as depressions, recessions, and booms
also render monetary policies ineffective. This was witnessed during the 2008/09 economic
recession. During the recession, major world economies faced harsh circumstances despite
having well formulated monetary policies in place. The available strategies failed to stir the
economy back to stability.
1.2.2 Failure of Monetary Policy in Developing Countries
Despite the widespread success of monetary policies, there exists a tendency of failure of the
policy in developing economies. The failure can be attributed to a myriad of reasons. Some of
the reasons include the following:

12

i)

In developing economies, markets and financial institutions tend to be highly

disorganized. Most of these countries operate under a dual monetary policy system
with a small organized money market catering to the financial requirements of
middle, and upper class. In addition, the markets cater for the largely disarranged
money market the low income individuals only turn to in times of need. The lack of
well-developed capital and money markets and a limited quantity and range of

ii)

financial assets creates and atmosphere that leads to the failure of monetary policy.
Most of the banks in developing economies are but sub-branches of giant,
international banks. Thus, in the event of being squeezed by local authorities, they
can turn to their parent companies. This leaves them with an unlimited supply of
funds ending up reducing the effectiveness of monetary policy. For example, Barclays

iii)

Bank Kenya is just a sub-branch of a larger bank.

In some instances, monetary policies end up being misused by the authorities. This
leads to a situation where the monetary policies fail to address the situation at hand.
Choosing the right mix is thus essential in the fight against inflation. Some instances

iv)

of inflation require the use of fiscal policies as opposed to monetary policies.

In third world countries, commercial banks tend to have excess funds due to lack of
viable projects and borrowers. This reduces the sensitivity of their cash base. In this

v)

case, the effectiveness of open market operations ends up being severely limited.
The existence of high levels of corruption ends up rendering some instruments like

vi)

selective credit control to be ineffective.

Illiteracy in the developing countries ensures that individuals have little or no
knowledge on the working of monetary policy. This reduces the effectiveness of
monetary policy.

13

vii)

Most individuals in developing countries prefer personal storage of money as

opposed to bank deposits. This ends up reducing the effectiveness of Central Banks

viii)

endeavors.
In addition, the existence of a linkage between low interest rates, expanded output,
and higher investments is devoid. This is based on the fact that investment decisions
are not sensitive to the prevailing interest rates, or movement. This creates a situation
where expectation plays a major role in determining investment. In retrospective,
existence of inflation leads to a situation where interest rates are negative. Also, the
existence of structural, bureaucracy, supply constraints, and absence of intermediate
producer play a role in limiting expansion of output even in situations where demand
increases leading to an increase in inflation. In this setting, public sector investment,
an essential component, ends up losing sensitivity to changes in interest rates.

1.3 Problem Statement

Despite the embracing of monetary policies by developing countries, most of them still find
themselves entrenched in a never ending cycle of inflation. The cycles of inflations end up
destroying counties pride, and to some extent, their sovereignty. This loss is derived from the
fact that the countries find themselves up to their neck with debts resulting from a weak currency
eroded by inflation.
In addition, monetary policies end up being inefficient during turbulent times. Some of these
times include times of political instabilities like Kenyas Post Election Violence. During this
time, prices of commodities soar up to a new level. Other times include instances of economic
booms and recessions. This was witnessed in the latest world economic recession. Even
economic giants were unable to protect themselves from the scourge that was an economic
recession.

14

1.4 Purpose
This researchs main purpose was to look into some of the factors that tend to render monetary
policies ineffective. In addition, the paper looked into the availability of other policies that can
aid in the control of inflation in case of a failure in the monetary policy. In this case, there exist
three notable operation lags. These lags include the following:
i)

Policy Lag: This describes the time that it takes to pursue new policies at the onset of

ii)

a period of change in an organization or existence of the need for change.

Outside Lag: This represents the period that lapses between the inception of a new

iii)

policy change and the onset of the effects of the change in the economy.
Recognition lag: This refers to an actual elapsed tie that arise between an actual need
for a policy action and the onset of a realization that such a need has been incepted.
Generally, this lag exists because economic data takes some time to collect, and also
with accurate data reasonable individuals require me to arrive at a shared verdict.

1.5 Research Questions

Is the current monetary policy system adequate in tackling and accomplishing objectives
of attaining a constant price level?
Is the Central Bank of Kenya effective enough in its regulation of the stock and
accessibility of money?
How well-suited is the monetary policy to other policies as the fiscal policy in its
objective of attaining price stability?
Are there any other policies that can address the problem of inflation better than the
current policies?
How adequate is the monetary policy in safeguarding the value of money?
1.6 Objectives of the Study
The objectives of the study revolved around exploring the significance and the suitability of the
monetary policy in realizing macroeconomic goals. Some of these macroeconomic objectives

15

included price stability, economic growth, full employment, and a favorable balance of payment.
These objectives are duly stipulated in the Central Bank of Kenyas Amendment Act.
Specific Objectives
The specific objectives of the study are as outlined below:
Establish the relationship between money supply and inflation.
Find out the effectiveness of monetary policy in the combating of inflation.
Find out the efficiency of the Central Bank of Kenya in controlling the supply and
availability of money.
Find out whether monetary policy is well established to enable the safeguarding of the
value of Kenyan currency.
Identify if there exist any other viable policies that can be used to combat inflation.
1.7 Significance of the Study
The study will be useful to the government, the Central Bank of Kenya, and other Stakeholders
who are involved in the formulation of monetary policies. In addition, the research will come in
handy in helping in the management of both monetary and fiscal policies to enable better control
of the economy. In this perspective, the research will aid in the elimination of the various
operational lags that affect the implementation of monetary policy.
1.8 limitations
The period available for carrying out the research was minimal. This because there existed much
data applicable to the research. In addition, resources available for carrying out the research were
limited. Therefore, the available resources were utilized in the best possible way.

16

17

CHAPTER II
2.0 Literature Review
2.1 Introduction
Theory has proposed several ways in which inflation can be combated; this chapter is concerned
with the literature that led to the use of such instruments and policies. To enable us understand
the prepositions made the study analyzed several theories:
2.1.1 The Classical Quantity Theory of Money
This theory was developed by Irving Fisher. Fisher took the view that money was only used as a
medium of exchange to settle transaction involving the demand and supply for goods and
services.
The quantity theory of money can be developed to a theory of price levels.
Since MV=PT
P=MV/T
Where V-velocity of circulation
P-price

M-money supply
T-quantity of transactions

Assuming that V and T are roughly constant, P will vary directly with increase or
decrease in the amount of M and it changes in money supply (M) that causes the prices (P) to
change, not changes in price that cause the changes in supply is assumed to be constant as the
economy in question is assumed to be operating at full employment. If the velocity of circulation
V is more or less constant than any growth in money supply (M) over and above the potential of
the economy to increase, T will cause inflation. This is then consistent with the monetary policy
to curb inflation by controlling the money supply in the economy as it leads to inflation.

18

A further notable feature in this theory is that the government monetary policy should allow
some growth in money supply if the economy is growing but not let the growth in money supply
to get out of hand as if output in the economy (T) is growing and the velocity of circulation (V)
is constant then a matching growth in the money supply of money is needed to avoid deflation.
2.1.2 Keynesian theory
Keynes argued that an increase or decrease in money supply only affects, only indirectly, the
demand for goods and services and hence the level of income though a change in the rate of
interest thus for example an increase in money supply leads to a fall in the rate of interest which
in turn causes private investment to fall and ultimately results in a decline in the level of national
income. The impact on the economy of the increase in money supply depends on the effect that
the interest rates produces .according to Keynesian view ,both investment demand and consumer
demand are relatively insensitive to interest rate changes. That is why they interest in-elastic.
Keynes argued that the volume of investments depends heavily on technological changes and
business confidence and expectations, hence an increase in the supply of money supply will have
a limited effect on aggregate demand and consequently relatively little effect on output and
employment. Keynesian argue that monetary policy will have limited effect on the economy and
national income ,because increase in money supply would be neutralized by the reductions in the
velocity of circulation leaving PT unaffected .according to Keynes increase in money supply
cannot lead to a proportional increase in the price level.
2.1.3 The Monetarist Policy Theory
Monetarists argue that since money is a direct substitute for all other assets ,an increase in the
supply of money supply ,given a fairly stable velocity of circulation, will have a direct effect on
the demand for other assets since there will be more money to spend on those assets. If the total

19

output of the economy is fixed, then an increase in the money supply will lead directly to higher
prices.
Monetarists therefore reach the same conclusion as the old quantity theory of money that a rise in
money supply will lead directly to a rise in prices and probably also to a rise in money incomes,
an increase in real output and so an increase in employment. In the long run however, they argue
that all increases in the money supply will be reflected in higher prices unless there is a longterm growth in the economy. Monetarist school of economic thought contended that money
supply is a key determinant of the level of production the short run and the rate of inflation in the
long run. In order to minimize uncertainty monetarist advocated for the maintenance of a
constant rate of growth of money supply.
2.3 Specific Literature
Kenya like many other developing countries has depended on monetary policy in order to
achieve price stability ,economic growth and development, positive balance of payments and full
employment .the following is a review of how the instruments have been used to attain stability
in the economy in Kenya. In 1970 the country recorded a balance of payment (BOP) deficit of
360 million and inflation rose by 7 percent. Due to this the central bank of Kenya imposed a
cash ratio of 12.5 percent, which it removed after four months and was replaced by a liquidity
ratio of 15 percent six months after the removal of the cash ratio .as a result of these credit
measures and the devaluation of currency of 1971 the CBK succeeded in reducing the growth in
domestic credit to 21 percent from 34 percent in the previous year and the deficit position
reduced to 191 million then to a surplus of 199 million in 1973. The inflation rate was reduced
to 4 percent.

20

To contain any reduction in GDP the Central Bank adopted a selective credit control and special
attention was given to the interests of marginal traders and productive agents in Agriculture. In
1973 inflation rate rose to 15 percent reflecting a sharp increase in money supply partly due to
two consecutive surpluses on BOP and the increase in private sector borrowing. In response to
this the CBK introduced a limit growth of private sector credit to a maximum of 12 percent p.a
and extended the 15 percent liquidity ratio requirement together with a restriction of local
borrowing by foreign controlled companies to maximum of 60 percent of the amount of their
foreign borrowing to avoid potential BOP problems following the 1973 oil crisis. Government
borrowing was limited to 400 million for the year 1973 and the interest rates were raised both in
saving deposits and advances but all these efforts did not the BOP deficit from reaching 434
million and inflation rate from rising to 16 percent accompanied by a slowdown in output
growth of 4 percent. The coffee boom which lasted 1976 to 1977 marked another phase of
Kenyas monetary policy. Foreign exchange reserves held by CBK increased by 2800 million
accompanied by a surplus in BOP by 787 million to 2176 million .To avoid inflation the CBK
raised the liquidity ratio of commercial banks to 18 percent and increased the lending rate to 10
percent. Surprisingly in 1978 the BOP deficit increased to1496 million as the domestic credit
grew at 35 percent. Money supply increased by 14 percent while GDP grew by only 7 percent.
This led to an imposition of a higher liquidity ratio of 20 percent and a cash ratio of 4 percent
which was later reduced to 18 percent and 3 percent respectively as the liquidity situation was
extremely tight.
These mechanisms yielded positively and BOP surplus of 1438 million was recorded in 1979,
though it caused money stock to increase by 16 percent and domestic credit rose by 13 percent
and government borrowing increased to 1323 million. In 1979 there was a thrust in the CBK

21

management of monetary policy as budgetary and fiscal policy operations seemed to undermine
the monetary policy. An important objective of monetary and fiscal policies since 1984 was to
control credit allocation between the government and the private sector though by end of 1984
the government share of credit amounted to 28.7 percent of total. This led to a continued BOP
deficit though this was improved in 1986 owing to another coffee boom. It was then clear that a
far reaching reform including improvement in the effective of the monetary policy needed to be
put in place. This led to the introduction of treasury bonds, open market operations rediscount
and advance facilities that are used up to date.
2.2 General Literature
Tetangco (2006) going forward the bank of Spain will continue to closely monitor development
that can impact on price stability to ensure that the monetary policy stance remains appropriate
and supportive of non-inflationary economic growth. This is to that monetary policy is key in
arriving at stable prices consistent with the basis of this study. This shows that if monetary policy
is well formulated it can help achieve stable prices.
Almashat(2008)there is need to reduce the fiscal policy dominance if we want to achieve
effective monetary policy as the monetary policy needs to be as independent as possible for it to
be effective. Laidemen et al.(2006) noted that the way economy responds to monetary policy is
also refine dependent regime shift towards inflation targeting may gradually induce the way in
which economic agents reacts to policy signals, thus improving the efficiency of new monetary
policy regime, hence its important to note that transmission channels of monetary policy may
change over time. Any change in variety of factors including changes in monetary regime,
structural reforms in banking, financial markets and other areas as well as changes in overall
credibility of economic policies could cause dynamic relations to shift over time.

22

Calender and Daane (2003) inflation targeting requires a forecast of inflation and an estimate of
how inflation is likely to be affected by changes in monetary policy instruments. The pursuit of
low inflation by means of any technique requires the same things for example the use of
monetary targets has to be based on an assumption about the relationship between current
monetary growth and future inflations and if the policy instrument is interest rates and future
monetary growth.
Svensson (2007) a successful inflation targeting policy is characterized by
i)
ii)
iii)
iv)

the announcement of the numerical inflation target

an implementation of monetary policy that gives a major role to an inflation forecast
an adoption of short term interest rates as the only monetary instrument and
A high degree of transparence and accountability.

Proponents of inflation targeting (Bermanke et al, 1999 Nadal De Simone, 2001; Carbe,
Lindererretche, and Schmit-hebbel 2002) demonstrate empirically that inflation targeting
associated with the improvement in overall economic performance. According to this author the
rationale behind this success is that by targeting directly price, inflation target plays a role of
explicit and strong nominal anchor. The implications of inflation targeting policy necessitates
that monetary authority announces the numerical target .The central bank should also set out the
period within which inflation will reach the target level.
The results of different studies suggest that inflation levels, persistence, and volatility are lower
in inflation targeting countries than in non-targeters. Johnson (2003) provides a strong evidence
of an immediate fall of inflation expectations after an adoption of inflation targeting. Levin,
Natalucci and Piger (2005), Palanzuela (2003) they argue that inflation expectations are more
anchored for targeters than for non-targeters particularly at longer horizons. Consequently the

23

supporters of this view claim strongly that monetary policy has become more efficient under
inflation targeting.
Andrew G. (2010) Nigeria should stop access to borrowing as this may lead to an increase in
prices. The more the government borrows the more it increases the supply which will lead to
high aggregate demand encouraging firms to raise prices of their goods and services .Tight
monetary and fiscal policies could also be the solution to inflation. David D. (2005) with
inflation targeting, our policy are more forecast, our communication clearer and inflation
expectations more solidly anchored. Sharon Davies (2011) South Africa has successfully pursued
inflation targeting monetary policy with a range of 3-6 percent on a continuous basis since
2007.This policy has encouraged a stable and sustainable economy that has seen an increase in
the annual growth rate to an average of 3.5 percent since 1999 and above 6 percent for 2007.
The Peoples Bank of China (PBOC) increased its benchmark lending and deposit rate for the
second time this year as the government continues to battle against surging prices. La
Daokui(2010) a member of the monetary policy committee with the(PBOC)said the rate hike
was mainly aimed at managing inflationary expectations and reflected the policy shift as
tightening the money supply is the best way to curb inflation. Besides interest rates hike China
has also increased the bank reserve ratio six times in 2010 to 18.5 percent and 19 percent for
some large commercial bank.

24

3.0 CHAPTER III: Research Methodology

3.1 Introduction
This chapter covers the methodology for this research project. In assessing how monetary policy
is used to control inflation this research utilized the ordinary least square method (regression
model) to analyze how the variables of monetary policy influence inflation.
3.2 Research Design
This study utilized quantitative data collected from Kenya National Bureau of Statistics(KNBS)
Journals ,economic reviews, Central Bank of Kenya proposals and journals ,World Bank
economic reviews and strategies among others. The data was used to analyze the effects of
money supply, commercial banks interest rates, and foreign exchange rates (KSH/USD) on
inflation rates in Kenya. The data used covered a ten year period from 2001 to 2010 of the
respective average annual variables listed above .The data was regressed in order to give the
values for further analysis carried out in chapter four of this research.
3.3 Model Specifications
The model used in this study is regression model and particularly multiple regression model as
inflation rate is assumed to depend on a number of several variables which are; money supply,
interest rates, and foreign exchange rates (KShs/USD)
Z=bo+b1x+b2j+b3k+e
Where
Z-represents the rate of inflation
b0-this gives the inflation rate when all other variables are zero
X- Total money supply
J- Foreign exchange rate in USA dollars

25

K-the commercial banks interest rates

b1- coefficient of money supply- It was used to measure how a unit change in money
supply changes the inflation rate
b2- coefficient of foreign exchange rate- It was used to measure how a unit change in
foreign exchange affects the rate of inflation
b3- coefficient of commercial banks interest rates It was used to measure how a unit
change in interest rates affects the rate of inflation.
e-the error term.
The rate of inflation (Z) is the dependent variable while money supply interest rates and foreign
exchange are the independent variables
3.4 Definition and Measurement of Variables
Four variables were utilized in this research and they were; inflation rate, money supply, foreign
exchange rates and commercial banks interest rates
Inflation is measured by a change in consumer price index (CPI)
Commercial banks interest rates is measured by averaging the mean market annual interest rates
for Kenyas commercial banks
Money supply m2 is the money held by public in form of cash, travelers cheques, current
accounts, saving deposits plus small time fixed deposits.
Foreign exchange rate is the average annual prevailing foreign exchange rate between Kenya
shillings and US dollars.
3.5

Study Area

The study area in the research was the whole country. Thus, data utilized for the research was the
countrys national data.

26

3.6 Ethical Consideration

Data collected was secondary and thus minimal ethic issues arose. However, where data
was of a confidential nature, it collected after seeking authorization from the national registration
agencies or respective organizations. This was after pledging utmost confidentiality and
promising that the data would be utilized for research purposes only. After verification of the
data, which formed the population for this research, any confidential information was deleted.
The data collected was solely used for this research and a lot of care was taken to ensure that any
sensitive information did not leak to unauthorized individuals.
3.7 Target Population
According to Mugenda and Mugenda 1999 a target population is a population to which a
researcher wishes to generalize the research study hence the target population in this study are
the persons involved in making business and economic policies of this country. Included also are
researchers and students pursuing any business or economic related courses.
3.8 Data type and source
This research mainly relied on secondary data obtained from written materials which included
publications from National statistics bureau of Kenya (KNBS),publications from the Central
bank of Kenya ,world Bank and from the internet; amongst others.
3.9

Data collection

The data used in this research was collected through studies, observations and from published
materials.
3.10 Data cleaning, coding, editing, refining and inputting
To permit quantitative analyses data must be converted into numerical codes representing
attributes or measurement of variables (Mugenda and Mugenda 1999). However, since this

27

research utilized secondary data entirely there was no need for data coding; as all data used was
quantitative in nature. The data was further inputted in a computer for further analysis.
3.11 Data analysis
The inputted data was then presented in the form of tables, graphs and pie charts .This provides
for an easier analysis and interpretation of the data inputted. Further the data was then regressed
to obtain t-values , p-values , specific coefficients and intercepts, standard errors among other
values at given significance levels .These values will be used for further analysis.
CHAPTER IV: DATA ANALYSIS AND PRESENTATION
4.1 Descriptive Statistics
This chapter gives data analysis and presentation in graphs enabling interpretation of the results.
The results of the analysis were used in the making of conclusions and recommendations. The
graphs below represent the collected data.
The following table shows the average annual rates of inflation in Kenya from 2001 to 2010.
YEAR
2001
INFLATION 5.8
RATE

2002
2.0

2003
9.8

2004
11.8

2005
9.87

2006
6.0

2007
4.3

2008
16.2

2009
10.5

2010
4.1

28

The following diagram shows the line graph of the above data;

Inflation
18
16
14
12
10
8
6
4
2
0
2001

2002

2003

2004

2005

2006

20007

2008

2009

2010

Inflation

From the above diagram its seen that inflation rate in Kenya has been rising and falling at
different times. It was lowest in 2002, then in the following year it rose to a rate of 9.8 then it
gradually rose to 11.6 before falling to 10.3 in 2005.It was highest in 2008 and this could be
attributed to post election violence and the Economic crisis that hit the world during that time.

29

The following table shows money supply in Kenya and the inflation rates over the same period
of time from 2001 to 2010.
The money supply is in hundreds of billions. This value has been converted to hundreds of
billions for an easier analysis to make the data in the table have the same range.

YEAR
INFLATIO

2001
5.8

2002
2.0

2003
9.8

2004
11.8

2005
9.87

2006
6.0

2007
4.3

2008
16.2

2009
10.5

2010
4.1

N RATE
MONEY

3.430

3.847

3.829

3.917

3.921

3.956

4.470

5.005

4.208

3.500

SUPPLY(

06

43

07

91

98

23

67

73

24

84

KShs
hundreds
of billions)

30

Below is a line graph showing the relationship between the rates of inflation and the money

Chart Title
18
16
14
12
10
8
6
4
2
0
2001

2002

2003

2004

2005

Inflation

2006

2007

2008

2009

2010

Money Supply

supply;

From the above diagram its evident that there is a positive relationship between money supply
and the rates of inflation. The rate of inflation rises or falls gradually as the amount of money

31

supply increases or reduces. Though there are some areas that do not seem to follow this trend
this can be attributed to other non-economic factors as political instability, tribal violence and the
contagion of world economic crisis.
The following table shows the rates of inflation and the foreign exchange rates in Kenya for a
period of ten years from 2001 and 2010.
YEAR
INFLATION RATE
FOREIGN

2001 2002
5.8
2.0
78.6 77.07

2003 2004
9.8
11.8
76.14 77.3

EXCHANGE

2005
9.87
72.376

2006 2007
6.0
4.3
69.40 62.6

2008 2009
16.2 10.5
77.71 75.8

RATE(KSH/USD)
Below is a line graph showing the relationship between the rate of inflation and the foreign
exchange rate for a period of ten years.

Chart Title
90
80
70
60
50
40
30
20
10
0
2001

2002

2003

2004
Inflation

2005

2006

2007

2008

2009

2010

Foreign Exchange Rate

Foreign exchange year is between the Kenya shillings and the USA Dollar .USA dollar was
preferred to other currencies as Kenya usually conducts most of its foreign transactions(payment
of its foreign debts, importation and exportation among others ) using the dollar. Rising foreign

2010
4.1
80.56

32

exchange rate means that the Kenyan shilling is depreciation against the dollar .this usually
favors exportation and makes importation more expensive and since Kenya is a major importer
of oil products and other basic products such food stuffs this usually has adverse effects on our
economy. This leads to increased inflation as shown by the above diagram. When the foreign
exchange rate rises (domestic currency depreciates) the rate of inflation also rises and when it
falls the rate of inflation also falls. This shows that there is a positive relationship between the
rate of inflation and the foreign exchange rate.
The following table shows the rates of inflation and commercial banks interests rates for a
period of ten years from 2001 to 2010.

YEAR
INFLATION RATE

2002
5.8

2002
2.0

2003
9.8

2004
11.8

2005
9.87

2006
6.0

2007
4.3

2008
16.2

2009
10.5

2010
4.1

COMMERCIAL BANK

19.49

18.34

13.47

12.25

13.16

13.74

13.32

14.87

14.76

14.39

INTEREST RATES
The following line graph shows the relationship between the commercial banks interests rates
and the rate of inflation.

33

Chart Title
25
20
15
10
5
0
2001

2002

2003

22004
Inflation

2005

2006

2007

2008

2009

2010

Commercial Bank Interest Rates

From the above diagram when commercial banks interest rates increases the rate of inflation
falls. Though there are some mixed reactions at some points this could be attributed to the other
factors that affect inflation including money supply, foreign exchange rates and other noneconomic factor as political and social instability among others. Increase in interest rates is one
of the most commonly used policy by the Central Bank of Kenya to control inflation this can be
shown by the recent increase of the base lending rate from 5 percent in 2010 to the current rate
of 16.5 percent from November of this year (2011).This usually has a direct impact as
commercial banks also increases their rates by the same or by a higher margin. This is a
contractionary policy as high interest rates discourage investors and this may have a negative
impact on the growth of the economy.
The table below shows the rates of inflation, money supply, foreign exchange rates and
commercial banks interest rates over the period of this study which is a ten year period.

YEAR

INFLATION

MONEY

COMMERCIAL

34

RATE(Z)

2001
2002
2003
2004
2005
2006
2007
2008
2009
2010

5.8
2.0
9.8
11.8
9.87
6.0
4.3
16.2
10.5
4.1

SUPPLY(X)(in

FOREIGN

BANKS INTEREST

KShs hundreds

EXCHANGE

RATES(K)

billions)
3.43006
3.82907
3.84743
3.91791
3.91178
3.95623
4.20824
5.00573
4.47067
3.50084

RATES(J)
78.6
77.07
76.14
77.34
72.37
69.40
62.68
77.71
75.82
80.56

19.49
18.34
13.47
12.25
13.16
13.74
13.32
14.87
14.76
14.39

4.2 Substantive Objectives

4.2.1 To establish the relationship between money supply and inflation.
The first objective was to establish whether there exist any relationship between money
supply and inflation. The research analyzed money supply for a range of 10 years. From the
analysis, it is clear that there exist a direct relationship between money supply and inflation.
Movements or deviation in one variable reflect a change in the other.

4.2.2 To find out the effectiveness of monetary policy in combating inflation.

The second objective aimed at investigating the effectiveness of money supply in
combating inflation. From the statistical analysis, money supply was found to be effective in
combating money supply. A change in the levels of money supply has an impact on the level of

4.3 Data Analysis and Interpretation

Summary Output

35

Regression Statistics
0.71857810
Multiple R

4
0.51635449

R Square
Adjusted R

2
0.27453173

Square
Standard Error
Observations

8
4.00197956
10

ANOVA
df
Regression
Residual
Total

3
6
9

SS
102.5939576
96.0950424
198.689

MS
34.19798587
16.0158404

F
2.135260156

Significance F
0.197046765

Lower 95
Coefficients
-

Standard Error

t Stat

P-value

percent

18.0419835
Intercept

9
5.47792816

25.07994616

-0.71937888

0.498955978

-79.41040097

8
0.23293355

3.028410868

1.808845763

0.120467442

-1.932326262

8
-

0.274774066

0.847727594

0.429103796

-0.439414359

0.63633912

-1.320506402

0.234798962

-2.397355614

0.84028988
K

The equation of this model then becomes;

Z = -18.042 + 5.478X + 0.233J -0.8403K
Interpretation of the Equation

36

b0 = -18.042 - this is the rate of inflation when all other factors are zero. This means that there
will be a deflation rate of 18.042 when money supply, foreign exchange rate and commercial
bank interest rates are zero.
b1 = 5.478 coefficient of money supply .this means that inflation rate increases at a rate of
5.478 when money supply increases by 100 billion.
b2=0.233 coefficient of foreign exchange rate .this means that the rate of inflation increases by
0.233 when foreign exchange rates increases by one. This can also be interpreted as when the
domestic currency depreciates by one the rate of inflation increases by 0.233.
b3=-0.8403 coefficient of commercial banks interest rates. This means that the rate of inflation
decreases by 0.8403 when commercial banks interest rates increases by one
Interpretation of p- values
X - 0.1204 This means that money supply is significant at 10 percent significance level.
J 0.4291 This means that foreign exchange rates are not significant at either 1 percent,5
percent or 10 percent significance levels.
K -0.2347 This means that commercial banks interest rates are not significant at 1 percent,5
percent or 10 percent significance levels.
Interpretation of regression statistics
Multiple R = 0.72
This is the correlation coefficient .it means that there is a strong linear relationship between the
rate of inflation and the factors affecting it that, money supply, foreign exchange rate and interest
rates.
R square

=0.52

37

This is the coefficient of determination. It means that 52 percent of the variations in inflation
rate can be explained by variations in money supply, foreign exchange rates and commercial
banks interest rates.

38

CHAPTER V: SUMMARY AND RECOMMENDATIONS

5.1 Summary
The broad objective of this study was to establish the effectiveness of monetary policy as a
tool for combating inflation. The variables investigated were the level of inflation, commercial
banks interest rates, money supply and the foreign exchange rate (measurable in dollars); from
Kenya. The research evolved from the continued inefficient use of monetary policies in Kenya.
The data collected was secondary in nature and a trend analysis carried out to investigate the
effectivenss of monetary policy in controlling the level of inflation. The ordinary least square
method (regression analysis) was utilized in the analysis of the data collected. Regression
analysis is a tool commonly utilized in the determining of the existence of a relationship between
variables; using historical data.
In addition, descriptive statistics were utilized in the analysis of the data collected.
Graphs were also used in the study to represent the data. The study carried out regression through
the utilization of Microsoft Excel. From the study, it is evident that monetary policies have a role
to play in the control of inflation. Thus, monetary policy, as a tool for controlling inflation, is
effective.
5.2 Conclusion
From the analysis, money supply was found out to be most significant factor affecting the
rate of inflation. When money supply increases by one hundred billion the rate of inflation
increases by 5.478. This being so, then it means that any increase in money supply should be
managed to a level that allows the economy to grow and also high enough to avoid deflation(a
situation where the prices are falling) This is due to the fact that, if money supply is zero and the
other factors are also zero, there will be a deflation of 18.042. This means that the economy is

39

not growing hence adversely affects the other objectives of macroeconomics. Also, it is evident
that there exist a positive relationship between increase in foreign exchange rate and the rate of
inflation; when the currency depreciates at a rate of one, inflation increases at a rate of 0.233.
Therefore efforts should be made to avoid any rise in foreign exchange or any depreciation in the
domestic currency.
Also, this research showed that there exist a negative relationship between the rate of
inflation and the commercial banks interest rates. When the commercial banks interest rates
increase by one percent, the rate of inflation reduces by 0.84. Thus, increase in interest rates is
one way of controling the rate of inflation. However, the rates of interest should be managed at a
level that does not hurt investments as high interest rates hinders investments and this leads to
poor economic growth hence it adversely affects the other macroeconomic objectives.
Apart from the macroeconomic variables discussed above its also evident other factors
influence the rate of inflation. Some these factors include political instability, tribal clashes
,international financial crisis(recession and depression ) amongst others. Inflation targeting
(where the monetary authorities set a certain target and manages the macroeconomic variables
towards achieving that inflation rate) as policy should also be used as this has shown positive
results in some parts of the world such as South Africa.
5.3 Recommendations
From this research it is evident that commercial banks and the entire banking sector play
a very vital role in the implementation of the monetary policies. Hence, there exist a need for the
active co-operation and harmony between the banking sector and the monetary policy authorities
in terms of policy formulation and decision making. This is shown by the fact that commercial
banks interest rates influence the rate of inflation by -0.84 for every unit rise in interest rates.

40

Its equally important also to make all the efforts necessary to avoid devaluing the
domestic currency or controlling any factors that can lead to its depreciation as we have seen that
inflation increases by 0.233 when the domestic currency depreciates by one unit.
Moreover money supply should also be increased at a rate that is consistent with the growth of
the economy as its evident from this research that an increase in money supply by 100 billion
increases the rate of inflation by 5.478 if it is not accompanied by an equivalent growth in the
Gross Domestic Product (GDP).Similarly its decrease beyond a certain level leads to deflation
hence it should also be avoided. Also, there exist a need to harmonize the fiscal and the monetary
policies as one without the other achieves less success. With a well-managed monetary policy it
is possible to keep the price levels down although some unpredictable economic shocks may tend
to destabilize the effects of these policies.
In a nutshell, it is worth noting that the monetary policy has been used successfully in
many of the major world economies such as USA, China, and South Africa and among others to
achieve price stability, increase employment level, promote economic growth and development
and also to achieve positive balance of payments.
5.4 Further Research
The following are the areas for further study
The existence of social factors that impact on the rate of inflation
The use of inflation targeting as policy measure that can be used to combat inflation
The relationship between economic shocks and monetary policy.

41

42

Bibliography
Ball, L., & Sheridan. (2008). Does Inflation Targeting Matter? The Inflation Targeting Debate. In
W. M, & B. S. Bernanke, Inflation Targeting: Lessons from the International Experience
(pp. 249-276). New Jersey: Princeton University Press.
Bernanke, B. S., & Woodford, M. (1997). Inflation Forecasting and Monetary Policy. Journal of
Money, Credit and Banking, 29,653-684.
Bernanke, B. S., Laubach, T., Mishkin, F. S., & Posen , A. S. (1999). Inflation Targeting:
Lessons from the International Experience. Princeton University Press: New Jersey.
Castelndovo, E. S., Nicoletti-Altimati, & Rodriguez, P. D. (2003). Definition of price stability,
Range and Point Targets: The Anchoring of Long Term Inflation Expectations. In
Background Studies for the ECBs Evaluation of its monetary policy strategy. Retrieved
from Edz.bib.uni-mannheim.de: edz.bib.uni-mannheim.de/daten/edzki/ezb/.../ecbwp273.pdf
Corbo, V. O., & Schimidt-Hebbel, K. (2002). Does Inflation Targeting Make a Difference? In L.
N, & S. R, Inflation Targeting, Performance, Challenges (pp. 221-269). Santiago: Central
Bank of Chile.
Gichuki, J., Oduor, J., & Kosimbei, G. (2012). THE CHOICE OF OPTIMAL MONETARY
POLICY INSTRUMENT FOR KENYA. International Journal of Economics and
Management Sciences, 1, 23.
Government of Kenya. (2005, March 18). Inflation Outlook and Monetary Policy. The Kenya
Gazette, pp. 506-509.

43

Heintz, J., & Ndikumana, L. (2010). Is there a case for formal inflation targeting in sub-Saharan
Africa. Accra: African Development Bank Group.
IndexMundi. (2012). Kenya Inflation Rate (Consumer Prices). Retrieved October 14, 2012, from
Index Mundi: http://www.indexmundi.com/kenya/inflation_rate_
percent28consumer_prices percent29.html
International Monetary Fund. (2007). Kenya: Poverty Reduction Strategy Annual Progress
Report - 2003/2004. Washington D. C>: International Monetary Fund.
International Monetary Fund. (2008). Kenya: 2008 Article IV Consultation - Staff Report; Staff
Supplement; Public Information Notice on the Executive Board Discussion; and
Statement by the Executive Director for Kenya. Washington, D.C.: International
Monetary Fund.
Kenya Economic Statistics and Indicators. (2012). Retrieved October 14, 2012, from Economy
Watch: http://www.economywatch.com/economic-statistics/country/Kenya/
Mudida, R. (2003). Modern Economics. Nairobi: Focus Publication Limited.
Nadal, D. F. (2001). Inflation Targeters in Practice, A lucky lot? Contemporary Economic Policy.
Contemporary Economic Policy, 239-253.
Ndung'u, N., Adam, C., Maturu, B., & O'Connel, S. (2010, April). Building a Kenyan Monetary
Regime for the 21st Century. Nairobi: Central Bank of Kenya.
Rotich, H., Kathanje, M., & Maana, I. (2007). A MONETARY POLICY REACTION FUNCTION
FOR KENYA. Nairobi: Central Bank of Kenya.

44

The Central Bank of Kenya. (2012). Monetary Policy. Retrieved from Central Bank of Kenya:
http://www.centralbank.go.ke/index.php/monetary-policy

45

YEAR

INFLATION

MONEY

RATE(Z)

SUPPLY(X)(in

FOREIGN

BANKS

KShs hundreds

EXCHANGE

INTEREST

RATES(J)
78.6
77.07
76.14
77.34
72.37
69.40
62.68
77.71
75.82
80.56

RATES(K)
19.49
18.34
13.47
12.25
13.16
13.74
13.32
14.87
14.76
14.39

billions)
2001
5.8
3.43006
2002
2.0
3.82907
2003
9.8
3.84743
2004
11.8
3.91791
2005
9.87
3.91178
2006
6.0
3.95623
2007
4.3
4.20824
2008
16.2
5.00573
2009
10.5
4.47067
2010
4.1
3.50084
APPENDIX A: Data Capture Template

COMMERCIAL