Inflation to ease next week – Uhuru

October 26, 2011

, NAIROBI, Kenya, Oct 26 – The government is projecting that inflation will to start easing by the end of this month.

Finance Minister Uhuru Kenyatta said on Wednesday that he anticipates the Consumer Price Index (CPI) to reflect a decline when the figures are released next week.

“With respect to inflation, we remain hopeful that when the CPI numbers are released, the rate will have begun to edge downwards,” the minister said.

The country has been witnessing a surge in the CPI since the beginning of the year driven by a sustained pressure on food and fuel prices and a weakening shilling.

September’s inflation stood at 17.32 percent but the current rains are expected to relieve the pressure on food prices which account for more than 50 percent of the weight in the CPI basket.

“The ongoing short rains in the country and the decline in international oil prices are good news that we expect to change the country’s economic landscape,” Kenyatta added.

Several measures have been employed to contain the inflation and the headache of a depreciating shilling but they have largely resulted to nought.

However, once the supply side constraints which have been blamed for this twin problem are addressed, the government is confident that inflation can get back to the single digit figures that the country witnessed in late 2010.

The government is looking at a target of five percent for the underlying inflation – which excludes the food and rent components of the CPI.

However, such a goal can only be achieved if other measures such as those designed to restore macro-economic stability are undertaken concurrently.

This is what the government has been trying to do and has sought additional support from the International Monetary Fund (IMF) to cushion the dwindling balance of payments.

Under the current Extended Credit Facility, Kenya is requesting for an extra Sh25 billion ($250 million) which would bring the loan granted under this program and -which is to be released through to 2013 – to Sh75 billion.

Internally however, the government is cognisant of the need to re-look at its expenditure and improve its monetary policy functions and this is what informed the appointment of Haron Sirima as the new Deputy Governor of the Central Bank of Kenya (CBK).

Sirima, who prior to his promotion was the Deputy Director in the Debt Management Department at the Ministry of Finance, will replace Dr Hezron Nyangito who is battling ill health.

“We expect Sirima to work closely with the Governor (Prof Njuguna Ndung’u) to help enhance the Bank’s capacity in monetary policy management,” stressed Kenyatta while confirming the appointment by President Mwai Kibaki at a press briefing.

The new assistant however affirmed that he is up to the task and will play his part to help stem the inflation and the weak shilling.

“I’m fully aware of the challenges facing the bank at the moment but I am going back to a familiar territory to support the governor and with the cooperation of all the market players and the Treasury, we are going to succeed,” he declared.

The major concern for the two will be how to stabilise the money market where CBK has been aggressively mopping the excess liquidity while meeting the genuine demand for foreign exchange.

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