Treasury Tells Central Bank of Kenya to Maintain Inflation Range at 5% Until 2022

Kenya’s overall inflation is expected to remain within the government’s target range of 5.0% according to the National Treasury’s advisory to the Central Bank of Kenya on Price Stability Target and Economic Policy.

Treasury says this is line with the macroeconomic developments and targets underlying the FY 2019/20 budget and medium-term expenditure priorities for the period 2019/20 – FY 2021/22 being the

the eighth consecutive year that it has maintained the average.

 Treasury says the 5.0% average for the 2019/2020 and 2021/2022 financial years will be measured by the 12-month increase in Consumer Price Index. 

“The Central bank of Kenya is, therefore, expected to achieve this 5.0 percent inflation target and will be accountable to the Government and the general public for its attainment,” said the National Treasury. 

“The flexible margin of 2.5% on either side of the inflation target is to cater for effects of external shocks,” it added. 

Genghis Capital, a stock brokerage firm, in its 3Q19 Macro-Economic & Fixed Income Outlook affirms that “Consumer confidence will hold steady with inflation falling within target levels (2.5% – 7.5%).” 

According to the analysts, they do not foresee maize supply shock to either give headline or food inflation a lift in 3Q19. “We expect inflation to remain within the target band as food supply shocks in the near-term are expected to be abated by the Aug-Sep harvest, coupled with suppressed oil prices on the global front.” 

“At the same time, demand pressure will remain mute, although some upside may stem from the ongoing withdrawal of Ksh 1000 notes,” observes Commercial Bank of Africa Analysts, Faith Atiti and Stephanie Kimani.

CBA further says the tame inflationary pressures coupled with the output gap should limit any scope for monetary tightening. 

On the other hand, prospects of easing may be dented by prospects of pervasive outcome where easing causes markets to instead tighten.

“Therefore, the CBK may keep the CBR on hold unless parliament approves the reversal of the interest rates cap, restoring efficacy of monetary policy signaling.”