In a virtual meeting with TikTok CEO Shou Zi Chew, President William Ruto discussed the Kenyan government’s aspirations for inflation to reach the Central Bank’s target of 5% by the end of 2023. The government has pursued a tightened monetary policy, maintaining a constant Central Bank Rate (CBR) of 10.5% since June 2023, which has led to increased interest rates. To counteract the impact of rising interest rates, the government is planning non-monetary measures.
According to a study conducted by the Parliamentary Budget Office, the Kenyan government expects inflation to drop to the Central Bank of Kenya’s (CBK) target range of 5% this year. The research identified the depreciation of the Kenyan shilling and adverse weather conditions as the primary factors contributing to the 7.6% average inflation in 2022. To prevent further inflation escalation, the CBK has upheld a tightened monetary policy by maintaining the CBR rate at 10.5% since June 2023.
This tighter monetary policy has resulted in higher interest rates on government assets and a potential slowdown in credit growth to the private sector. It is noted that such continued tightening of monetary policy could reduce economic activity by increasing private sector credit costs and potentially heightening government borrowing costs, thus increasing debt vulnerabilities.
To counteract these effects, the government is coordinating non-monetary measures to address the rising cost of living, inflation, and support economic growth. These measures include subsidizing fertilizers to reduce farming input costs, allowing duty-free importation of essential food items like maize, cooking oil, rice, and sugar, and investing in key economic value chains.
Furthermore, the report mentioned that inflation is anticipated to remain under control throughout 2023-2024, largely due to decreased food inflation attributed to favorable rainfall patterns.