NAIROBI, Kenya, Jan 25 – The uncertainty over the timing of the next general elections and slow pace of credit growth to the private sector could hamper economic expansion this year, according to some financial experts.
Investment Analyst at Pinebridge Investments, Peter Wachira said on Wednesday that traders have in the past been wary of investing in the country due to the 2008 post election violence, and that many were now adopting a wait-and-see attitude before increasing their investments.
“Economic growth in 2012 is likely to be subdued by the lag effects of high interest rates and a cautious stance adopted by the private sector,” he said although he added that implementation of the Constitution appeared to have mitigated some political risks.
His fellow analyst Edward Gitahi said the expected slowdown in credit growth had made the investment firm review its economic forecast for 2012 from five percent to between four percent and 4.5 percent.
“Interest rate levels in the first half of 2012 are expected to remain high mainly due to elevated inflation and the need to defend the shilling, but we don’t foresee a hike in the lending base rate as they may have already hit their peak,” affirmed Gitahi.
The Central Bank’s efforts to defend the shilling after reaching a low Sh106.2 to the US dollar appear to have been effective, but these main gains may not be sustained in the long term if the trade deficit continues to widen.
Their short term outlook for the local unit is dependent on the conduct of the Monetary Policy Committee (MPC).
Both analysts added that two of the key economic challenges for last year were the persistent rising inflation levels which came about from drought conditions as well as the rising cost of crude oil.
The inflation outlook for this year is set to appear positive as food supply is expected improve following better than expected short rains.
Wachira and Gitahi are estimating that overall inflation could average 11 percent for 2012.