CBK governor downplays effects of polls on economy

What you need to know:

  • The country’s overall inflation peaked at 11.7 per cent in May but dropped in June and July as the return of rains improved food supplies.
  • Inflation slowed to 7.1 per cent last month.
  • The governor’s comments came a day before top electoral official Roselyn Akombe quit IEBC, heightening political tensions ahead of the fresh presidential election scheduled for October 26.
  • Traders told Reuters the central bank had sold dollars in the foreign exchange market after the shilling weakened on news that an election official had resigned.

Central Bank of Kenya (CBK) governor has again downplayed the potential negative impact on the economy from the repeat president election, which has heightened uncertainty in the market.

Patrick Njoroge said in an interview with Bloomberg TV in London Tuesday that while liquidity in the country’s money markets is tight at the moment, it has “nothing to do with the political circumstances.”

Business leaders and experts have warned that a long drawn-out election period could raise risk to business and negatively impact the economy.

However, the bullish Dr Njoroge admitted the central bank may slightly lower its 2017 economic growth forecast to reflect uncertainty around the elections.

“The rate could be south of 5.5 per cent, but definitely above five per cent,” Dr Njoroge was quoted saying. The government has already cut the forecast from 5.9 to 5.5 per cent.

The governor had earlier argued that favourable weather for agriculture and sustained public investment in infrastructure development would help cushion the economy from knocks of prolonged electioneering.

He reiterated that despite the drought, food inflation will not have knock-on effects on macro-economy if the monetary policy was managed correctly.

“We are not worried about that and at this moment inflation is well-anchored,” he was quoted. A prolonged drought early this year affected food production leading to a sharp rise in inflation.

The country’s overall inflation peaked at 11.7 per cent in May but dropped in June and July as the return of rains improved food supplies. Inflation slowed to 7.1 per cent last month.

The governor’s comments came a day before top electoral official Roselyn Akombe quit IEBC, heightening political tensions ahead of the fresh presidential election scheduled for October 26.

Traders told Reuters the central bank had sold dollars in the foreign exchange market after the shilling weakened on news that an election official had resigned.