Inflation to hit 10pc in 2014 H1

October 23, 2013
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Interest rates are expected to remain at the current level until the end of the year with some tightening if inflation trends above 10 percent/FILE
Interest rates are expected to remain at the current level until the end of the year with some tightening if inflation trends above 10 percent/FILE
NAIROBI, Kenya, Oct 23 – Inflation is expected to drift above 10 percent in the first half of 2014, according to a PineBridge Investments East Africa survey.

PineBridge Investments East Africa Senior Investment Manager Edward Gitahi says this is attributed to food prices which are expected to creep up mainly due to drier weather being experienced currently as well as uncertainty in the outlook for the long rains next year.

Gitahi says the introduction of VAT on a number of goods and services is also expected to elevate general price levels in the economy.

Interest rates are expected to remain at the current level until the end of the year with some tightening if inflation trends above 10 percent.

“The Central Bank is likely to continue managing liquidity in the money markets in order to manage the Kenya shilling from either appreciating or depreciating sharply,” Gitahi says.

He said that the shilling was remarkably stable against the US dollar in the first eight months of the year emphasizing its resilience in the face of global crisis such as instability in North Africa and Middle East

He says that in the short term the Kenya shilling is expected to be supported by the investment flows and strengthening of foreign exchange reserves.

“Rising import demand and higher commodity prices could however lead to some weakness of Kenya shilling back to 86-88 levels,” he said.

The survey reports petroleum and mineral resources could contribute more than five percent to the Kenya’s Gross Domestic Product (GDP) in the medium term and surpass traditional exports such as coffee as key foreign exchange earners.

PineBridge Investments East Africa Investment Manager Nicholas Ithondeka says the sectors’ noticeable contribution to the economy is expected to be felt when oil production and largest exports of rare earth minerals commences over the next three to four years.

Ithondeka says there is a growing global demand for rare earth minerals and preliminary estimates indicates that Kenya holds about Sh5.4 trillion ($64.2 billion) worth of rare earth minerals.

“Exports of rare Earth mineral could take another three years to commence once the current exploration licensing issues are settled,” he said.

Rare earth mineral are a group of 17 chemically similar elements crucial to the manufacturer of many hi-tech products including energy efficient bulbs, powerful magnetism, wind turbines, hybrid cars, refining of crude oil among others.

He says that oil will allow Kenya to diversify export earnings, slow down the import bill and act as a catalyst for infrastructure spending especially on transport network.

He says that proper legal frameworks in these sectors are required to attract investment and ensure oil and gas production benefits the country.

The report indicates that the economy will grow by 5.4 percent in 2013 compared to 4.6 percent last year.

The growth is attributed to good performance of agriculture, manufacturing building and construction and financial sectors in 2013.

The tourism sector is expected to underperform this year on account of security concerns.

The building and construction sector will support economic growth buoyed by the value of approved building plans in first half of 2013 which increased by 28 percent compared to same period last year.

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