IMF says Kenya's economy will grow at 5.7 per cent

Nairobi

The country's economy is expected to grow 5.7 per cent in fiscal year ending June next year, from 5.4 per cent in the 2010/2011 financial year, while headline inflation will be within the 8-9 per cent range by end of the year, the International Monetary Fund has said.

The projection is in line with Government’s own forecast contained in the finance minister’s Budget speech last year.

“A rebound in regional and global demand supports tourism, and a dynamic private sector has spurred investment and an acceleration of growth across all non-agricultural sectors,” the IMF said late on Thursday.

“Agriculture growth is expected to decelerate sharply because of delayed rains during the main rainy season (April-June).”

Domestic demand

The shilling’s depreciation reflected strong domestic demand and high oil prices, it added. The shilling closed trade at Sh89.85/95 against the dollar on Thursday after hitting Sh90.00 earlier, weaker than Wednesday close of Sh89.70/80.

Kenya’s year-on-year inflation rate rose for the seventh consecutive month in June to 14.49 per cent, from 12.95 per cent a month before. The IMF said rising inflation rates could hamper economic recovery.

“The surge in global commodity prices, the strength of private investment, and mixed rainy seasons have translated into strong pressures on both inflation and the external position that, if not managed, could bring to a halt the ongoing recovery,” it said.

IMF added that Central Bank of Kenya needed to keep tightening its monetary policy to account for inflationary expectations.Become entrenched

“The ongoing monetary tightening should continue to ensure that the recent inflation burst does not become entrenched,” it said.

“There are no doubts that temporary factors have played a key role in boosting food prices, but rapid credit growth has fueled domestic demand and exacerbated inflationary pressures.”

It said the bank’s recent action of absorbing liquidity by raising interest rates were also expected to keep the pressure in check.

—Reuters