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Inflation to rise on fuel VAT but food prices to remain stable- CBK

The Bank’s Monetary Policy Committee projects inflation will remain within the Government’s 7.5 percent target due to lower food prices

NAIROBI, Kenya, Sep 26 – The Central Bank of Kenya expects overall inflation to rise following the implementation of VAT on petroleum products accompanied by an increase in international oil prices.

The Bank’s Monetary Policy Committee, however, projects inflation will remain within the Government’s 7.5 percent target due to lower food prices reflecting favourable weather.

“Lower imports of food compared with 2017 are expected to moderate the impact on the current account of a higher petroleum products import bill and the expected front-loading of imports with respect to the ongoing SGR project,” said CBK Governor Dr. Patrick Njoroge.

Njoroge, who is also the Chair of the Monetary Policy Committee said the economy remains stable in the near to medium term due to a narrowing of the current account deficit from 6.7 percent in 2017 to 5.6 percent in June 2018.

The MPC in a statement said strong performance of agricultural exports particularly tea and horticulture, resilient diaspora remittances and the continued improvement of the tourism sector have helped shore up foreign exchange reserves providing adequate cover and buffer against shocks in the foreign exchange market.

The CBK foreign exchange reserves currently stands at $8,507 million which is 5.6 months of import cover.

The committee noted that inflation expectations remained well anchored within the target range, but concluded that there was need to monitor the second-round inflationary effects arising from the VAT on petroleum products, “and any perverse response to its previous decisions.

“The Committee, therefore, decided to retain the CBR a 9.00 percent.”

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