Home Business Markets CBK backs inflation, shilling stability to deliver 5.7pc growth

CBK backs inflation, shilling stability to deliver 5.7pc growth

The Central Bank of Kenya (CBK) projects the economy to register a 5.7pc growth this year on the backdrop of higher output from agriculture and services sectors.

CBK Governor Dr Kamu Thugge in a post Monetary Policy Committee (MPC) on Wednesday said key to delivering growth this year will be pegged on ensuring stability in foreign exchange market and inflation in order to have a stable macroeconomic environment to encourage both domestic and foreign investments.

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Inflation rate rose to 6.9pc in January from 6.6pc in December on account of rising food prices and higher energy cost.

In its first sitting of the year on Tuesday, the MPC hiked the Central Bank Rate (CBR) by 50 basis points to 13pc which is expected to result to higher borrowing costs for consumers.

“The proposed action will ensure that inflationary expectations remain anchored, while setting inflation on a firm downward path towards the 5pc mid-point of the target range, as well as addressing residual pressures on the exchange rate,” said Dr Thugge.

The shilling has been on a free fall against major currencies, depreciating by more at least 20pc against the US dollar. CBK bets on the upward movement of the benchmark rate to strengthen the exchange rate.

“CBK policy on the exchange rate is to allow the foreign exchange market to be determined by market forces. However we do intervene when we see that there is excessive volatility. It is my view that the foreign exchange has overshot the equilibrium rate so there could be scope for CBK to support the FX going forward,” he stated.

According to Dr Thugge, the shilling is expected to stabilize by end of April this year with new dollar inflows from multilateral lenders and increased interests by foreign investors in government securities.

A new funding to the tune of $1.5 billion from the World Bank in the second quarter of this year will add to $684 million and $400 million the country has received from the International Monetary Fund (IMF) and Trade Development Bank (TDB) respectively, which has further strengthened the country’s reserves.

“We are in the process of issuing the infrastructure bond and we have seen significant foreign interest in purchasing the infrastructure bond and therefore we expected foreign exchange to come in from the purchase of the bond,” added Dr Thugge.

CBK projects a 5.7pc GDP growth this year from 5.6pc estimates for 2023 backed by stronger growth in Agriculture, Wholesale and Retail, Accommodation and expected recovery in transport and storage as the exchange rate stabilizes and fuel prices ease.

Additionally, the regulator projects the ongoing implementation of key government programmes this year to support value addition in manufacturing which could push growth of the sector from 1.9pc last year to 2.9pc.

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