By Jackson Okoth
As campaigns for the March 4 elections enter the homestretch, eyes are on how inflation figures and the exchange rate will react.
Expectations are high that a weaker shilling seen in the last few weeks could feed into higher consumer prices. “I believe we are in the end of a low inflation rate regime. The low base effect has entirely rolled off and I think the inflation sweet spot is now behind us,” said Aly Khan Satchu, an independent analyst in Nairobi.
Typically, the economy is usually hit by huge cash injections during electioneering period and analysts expect this year to be of no exception. “This tsunami of liquidity will most likely see an upstick and higher blip in inflation figures,” said Satchu.
Attention will be on how Central Bank of Kenya (CBK) steers the economy from the turbulence the March polls is creating. There is consensus that in the absence of a law limiting campaign financing, there is little the CBK can do under the circumstances.
“The CBK faces an asymmetric risk where things tip and we see racketeering. This is an extreme outcome about which they can in fact do little,” said Satchu.
In its January Monetary Policy Committee meeting, the CBK steered clear from the political risks posed by the polls, perhaps indicating its hopelessness in dealing with this fluid situation. The Shilling is expected to weaken as end month importer demand and political jitters weigh in.
“In my view, the Shilling is headed to 90.00 and the CBK might want to hold their fire. This is because a weakening currency essentially sharpens inflationary risks,” said Satchu. At the close of trading yesterday, banks quoted the shilling at 87.50/70 per dollar.
