The National Treasury has maintained the country’s inflation target range at ...
2.5 to 7.5 per cent for a sixth year running.
2.5 to 7.5 per cent for a sixth year running.
The
inflation target is measured by the 12 month increase in Consumer Price
Index (CPI) as published by the Kenya National Bureau of Statistics
(KNBS).
The affirmation comes at a time when the cost
of living has risen above the preferred ceiling, pushed by higher food
prices as a result of drought.
“The inflation target
shall be five per cent, with a flexible margin of 2.5 per cent on either
side in the event of adverse shocks,” says Treasury secretary Henry
Rotich in a notice to the CBK on the price stability target and economic
policy of the government.
“The flexible margin of 2.5
per cent on either side of the inflation target is to cater for effects
of external shocks such as oil price variations and domestic shocks
particularly weather related ones. This will help preserve macroeconomic
stability and reduce undesirable fluctuations in economic performance.”
Under
Treasury current inflation targeting regime, when inflation heads above
target, the CBK would generally interpret that as a signal higher
interest rates are required to cool the economy.
Likewise,
inflation heading below target usually signals lower rates are needed.
The whole framework assumes a predictable relationship between inflation
and output.
CBK’s base lending rate has been held at
10 per cent since September last year and is the main pricing tool for
bank customer loans following the enactment of legislation capping rates
in August 2016.
This is in spite of inflation rising
to as high as 11.7 per cent this year (in May), due to high food prices
caused by a prolonged drought.
Kenya’s annual inflation
rose to 8.04 per cent last month from 7.47 per cent in July, according
to the Kenya National Bureau of Statistics (KNBS).
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