NCBA cuts economic growth to 4.9pc on increased uncertainty

Tuesday, June 21st, 2022 06:35 | By
NCBA Bank. PHOTO/Courtesy
NCBA Bank. PHOTO/Courtesy

NCBA Group analysts have downgraded Kenya’s economic growth prospects from 5.2 to 4.93 per cent on the back of a tough economic environment.

The group’s Economic Update for 2022 showed pressure on interest rates around the debt sustainability and tightening of monetary policy for the federal reserves will impact financing costs in the country. They said external financing remains a significant source of hard currency in local markets including the funding of official reserves.

Excess demand for dollars, coupled with a worsening current account deficit and a reversal in capital flows including by foreign investors, are also expected to sustain pressure on the Kenyan shilling.

Faith Atiti, a senior research economist at the NCBA Group said that domestically, governments may have little option but to either slow down their expenditure to avoid getting off unsustainable debt.

“And what that means is the US dollar in assets are considered safe havens. We’ve seen basically a flight of capital back there. This is making it extremely difficult for most governments, which rely on external markets to finance their deficits,” she said.

Significant sell off

She added that the securities are already witnessing significant sell off and slowdown in capital as investors pull out. “Yeah, we’ve seen significant sell off at the NSC, both for equities and equities and bonds, but we are also seeing some sort of slowdown in terms of this other capital chasing other goods,” The experts pointed out that the Conflict in Russia has introduced new uncertainties and aggravated earlier threats to growth.

The rising inflation is accelerating financial tightening by central banks with governments expected to reduce public expenditure.

Raphael Agung’ chief economist for the group said inflation will slow down marginally in the second half driven by slowing demand but will remain uncomfortably above central bank’s target. “With the strong response by Central Bank in advanced economies, we’ve seen significant capital reversal, including in our own markets,” said Agung’.

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