The government projects that inflation will slow down to the Central Bank of Kenya (CBK) target range of 5 per cent in 2023, a report of the Parliamentary Budget Office shows.
The report noted that inflation averaged 7.6 per cent in 2022 mainly due to adverse weather conditions, high global commodity prices and direct effects of the depreciation of the Kenyan shilling.
“To avert further escalation in inflation, the CBK has sustained a tightened monetary policy by maintaining the CBR rate at 10.5 per cent since June 2023,” it said.
The report said tightening of monetary policy has helped soften inflationary pressures and contributed to higher interest rates for government securities.
It added that it has also seen an upward adjustment of bank lending rates and a possible slowdown in credit growth to the private sector.
“Continued tightening of the monetary policy is likely to slow down economic activity by increasing the cost of credit for the private sector and aggravate debt vulnerabilities by raising the cost of borrowing for government,” the report read in part.
It added that the ongoing coordination of non-monetary measures to deal with the cost of living, inflation, and growth will help dampen the negative effects of higher interest rates.
“Prominent measures under this category include the provision of subsidised fertiliser to lower the cost of farm inputs, the provision of duty-free importation of key food items particularly maize, cooking oil, rice and sugar, and the planned investment in critical economic value chains,” the report said.
It added that inflation is therefore expected to remain within a manageable statutory range throughout 2023/2024.
It explained that this will be due to the slowdown of food inflation associated with good rainfall performance in recent months.
