Connect with us

Hi, what are you looking for?

Capital Business
Capital Business

Kenya

Experts predict tight fiscal regime

NAIROBI, Kenya, May 10 – An economist has predicted a tight monetary policy regime in the country as the Central Bank of Kenya (CBK) comes under increasing pressure to correct the rising cost of living.

Standard Bank Head of African Research Stephen Bailey-Smith said on Tuesday that the CBK needs to tighten monetary policies that tame inflation which soured into double digits in April.

"After sustained years of growth, inflation seems to be quickly picking up. If the Central Bank does not step in then inflation could go as high as 18 percent this year," Mr Bailey-Smith said.

Inflation in April raced to 12.05 percent from 9.19 percent in March, on the back of high fuel and food prices.

The CBK has already signalled its intent to rein in inflation when it raised its benchmark Base Lending Rate to six percent from 5.75 percent in March.

At the time, the economy had come under both domestic and external shocks.

This sent the signal that temporary shocks such as exchange rate volatility and seasonal food shortages should not be allowed to persist lest they affect pricing structures.

However, little has changed since then with commodity and fuel prices surging forward as the shilling continues to face immense pressure from major currencies.

Mr Bailey-Smith said interest rates had failed to keep pace with market dynamics, adding that the CBK needed to stay ahead of the curve.

Advertisement. Scroll to continue reading.

He said that initial focus had been growth adding that the Central Bank needs to create an avenue that stabilises growth.

"The last couple of years have been much about stimulating growth after the financial economic growth. Now it is a question of managing that boom through stabilising inflation rather than growth promotion," Mr Bailey-Smith said.

At the same time, he faulted the government\’s decision to scrap all taxes on kerosene and slash taxes on diesel in addition to waiving duty on imported maize and wheat.

"That is a fairly dangerous route the government has taken. As a matter of fiscal prudency, this is not desirable because it will pile pressure on the government again when revenue collection is a challenge," he said.

He said that the CBK could also consider temporary controls on capital inflows to mitigate exchange rate volatility in the country.

Standard Bank has forecast the economy to grow at between 4.3 to five percent in 2011.

Follow the author at https://twitter.com/MjKaranja

Click to comment
Advertisement

More on Capital Business

Executive Lifestyle

NAIROBI, Kenya, Mar 12 – The country’s super wealthy individuals are increasing their holding of bonds, gold and cash, a new report by Knight...

Ask Kirubi

NAIROBI, Kenya, Mar 9 – Businessman and industrialist Dr. Chris Kirubi has urged members of the public to exercise extreme caution when making any...

Ask Kirubi

NAIROBI, Kenya, Mar 24 – Businessman and industrialist Dr. Chris Kirubi is set to own half of Centum Investment Company PLC, following a go-ahead...

Headlines

NAIROBI, Kenya, Mar 18 – Commercial Banks have been ordered to provide relief to borrowers on their personal loans, with loans eligible from March...

Ask Kirubi

It is without a doubt that the COVID-19 pandemic has caught the whole world by surprise. Although its full impact is yet to be...

Kenya

NAIROBI, Kenya, Jun17 – Kenya’s tea leaves manufacturer Kericho Gold, has been awarded the Superbrands Seal by Superbrands East Africa for their quality variety...

Coronavirus

NAIROBI, Kenya, Apr 13 – As the local telecommunications industry gears up to roll out 5G networks in the country, the Communications Authority of...

Coronavirus

NAIROBI, Kenya, Mar 22 – Airtel Kenya is offering free internet access for students in order to enable continued learning at home in the...