How global rates surge stifles trade
The Central Bank of Kenya (CBK) has revealed that a surge in interest rates in the developed world is making it difficult for emerging countries like Kenya to access investors in their capital markets.
Speaking to Bloomberg in New York, CBK Governor Patrick Njoroge (right) blamed developed economies for the pressure on the shilling, but said the regulator will remain focused on managing inflation rather than containing exchange rate fluctuations.
He is bullish that the economy will expand by 5.4 per cent.
“It is the dollar that is at the highest level in 20 years. From our perspective, we are a very open economy and a very flexible exchange and have really aare quite happy with where we are,” said Njoroge.
“The monetary policy will remain geared towards inflation and price stability, not the shilling.” he added.
The Kenya shilling depreciated by 6.9 per cent due to a strengthening dollar but the resilience of the shilling by far outperformed many other emerging market currencies.
The rate of inflation has also risen to 8.5 per cent, from 8.3 per cent last month, driven up by higher food prices.
It is the third month in a row that the rate of inflation is outside the government’s targeted band of 2.5 per cent — 7.5 per cent. The monthly inflation rate for August 2022 was 0.4 per cent. Njoroge further noted that while inflation is being driven by the price of oil, prices will be coming down on the international market soon.
“We expect that the price of oil will be coming down in the next quarter; and for some of the major drivers like maize ... there will be supply since the harvest season is nearby,” said Njoroge.
President William Ruto has frozen subsidies for petrol and maize in order to save and help to service the country’s debt.
Njoroge said that when oil prices come down, it will eliminate the need for subsidies as has been seen in the recent past. Kenya’s debt is 70 per cent of GDP and the country is under tight fiscal space that has left the National Treasury with cashflow challenges.