Kenyan Central Bank Moves to Ease Investors' Vote Concerns

Updated on
  • Institutions show Kenya is mature democracy, Njoroge says
  • Inflation ‘well anchored’ despite drought’s impact on food

Kenya Central Bank Sees Inflation 'Well Anchored'

Kenya’s central bank is communicating a sense of normalcy and continuity to investors amid uncertainty about the country’s protracted elections, Governor Patrick Njoroge said.

Institutions including the nation’s courts show Kenya is a “mature” democracy, Njoroge said in an interview with Bloomberg TV in London on Tuesday. While liquidity in the country’s money markets is tight at the moment, it has “nothing to do with the political circumstances,” he said.

Kenya’s Supreme Court last month overturned President Uhuru Kenyatta’s win in an Aug. 8 election, after finding the vote wasn’t conducted in line with the constitution. Opposition candidate Raila Odinga, who has demanded changes at the electoral commission to ensure the rerun scheduled for Oct. 26 is credible, last week withdrew from the race saying the management of the vote “would be worse than the previous one.”

A drought that led to a contraction in farming output and pushed up food prices means East Africa’s largest economy will probably expand at the slowest pace this year since 2012, according to International Monetary Fund projections. The prolonged election period has increased risks for investors and traders, the lender’s resident representative in Kenya, Jan Mikkelsen, said Monday.

Interest-Rate Caps

Despite the drought, “food-driven inflation will not have knock-on effects on other things if we can manage the monetary policy correctly,” Njoroge said. “We are not worried about that and at this moment inflation is well-anchored.”

Inflation slowed to 7.1 percent last month and the central bank has kept its key rate at 10 percent since September 2016.

Kenyatta introduced a law limiting interest charges on loans to 400 basis points above the Central Bank of Kenya rate last year. Monetary policy has been complicated by the caps, Njoroge said.

“There is some concern about the direction of policy in order to produce stimulus,” he said.

Njoroge said the central bank may lower its 2017 economic growth forecast slightly to reflect uncertainty about the elections. The rate could be “south of 5.5 percent, but definitely above 5 percent,” the former IMF adviser said in an interview in Washington on Saturday.

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