According to a Parliamentary Budget Office study, the Kenyan government expects inflation to drop to the Central Bank of Kenya (CBK) target range of 5% in 2023.
According to the research, the depreciation of the Kenyan shilling and unfavorable meteorological conditions were the primary causes of inflation in 2022, which totaled 7.6% on average. “To avert a further escalation in inflation, the CBK has sustained a tightened monetary policy by maintaining the CBR rate at 10.5 percent since June 2023,” it said.
According to the research, tighter monetary policy has increased interest rates on government assets while also easing inflationary pressures. It also noted that bank lending rates had increased and that credit growth to the private sector may have slowed down.
“Continued tightening of the monetary policy is likely to slow down economic activity by increasing the cost of credit for the private sector and aggravate debt vulnerabilities by raising the cost of borrowing for government,” the report read in part.
The continued coordination of non-monetary measures to address rising living expenses, inflation, and economic expansion was also mentioned as a way to mitigate the negative consequences of increased interest rates.
“Prominent measures under this category include the provision of subsidized fertilizer to lower the cost of farm inputs, the provision of duty-free importation of key food items particularly maize, cooking oil, rice and sugar, and the planned investment in critical economic value chains,” the report said.
Additionally, it stated that throughout 2023–2024, inflation is anticipated to remain within a legal level that is controllable. It was clarified that this would be the result of a decrease in food inflation owing to recent strong rainfall performance.