CBK works on cutting inflation, stabilising shilling

The Central Bank of Kenya will focus on lowering inflation and maintaining exchange rate stability to spur growth, Governor Njuguna Ndung’u said in the bank’s September newsletter.

The Bank said it would aim at keeping inflation expectations within the government’s 5.0 per cent medium-term target, and keep the shilling stable to help foster growth.

“Looking ahead, monetary policy will focus on anchoring inflation expectations to low levels within the target, and sustaining the stability of the exchange rate,” Ndung’u said.

“This would provide a stable macroeconomic environment necessary to support a stronger economic growth base and a planning horizon by private sector for higher investments.”

Early this month, CBK cut its key-lending rate by a record 350 basis points to 13 per cent, largely in line with market expectations and against a background of reducing inflationary pressures and exchange rate stability.

Food supply
The country’s year-on-year inflation fell for the ninth straight month in August, and faster than expected, to 6.09 per cent.

Projected good rains and a stable supply of food is expected to further ease the country’s inflation.

Ndung’u said CBK would also strive to maintain adequate stocks of foreign exchange reserves that provide a buffer for shocks and confidence in the market.

The official usable foreign exchange reserves rose last week to $5.193 billion from $5.147 billion the previous week.

Kenya and its neighbours – Tanzania and Uganda – took a hit from soaring inflation and weakening currencies last year, prompting policymakers to adopt a tight monetary stance.

The country ramped up the Central Bank Rate by 11 percentage points in the last quarter of last year, to 18 per cent after inflation surged towards 20 per cent, and held it there for seven consecutive months, before cutting it to 16.5 per cent in July.

High borrowing costs
The tightening has yielded fruit this year with inflation falling and the shilling regaining stability.

But high borrowing costs have dealt a blow to growth, which slowed to 3.5 per cent in the first quarter of this year, compared with 5.1 per cent for the same period last year. That was the slowest first-quarter growth figure for Kenya since 2008, National Bureau of Statistics data showed.
— Reuters