Treasury maintains inflation range at 5% until 2022

The range by Treasury between 2.5 per cent - 7.5 per cent marks the eighth consecutive year in decision

In Summary

• The National Treasury has maintained the inflation margin of 2.5 per cent – 7.5 per cent for the the two financial years to June 2022.

• The average rate at 5.0 per cent for the period between financial year 2019/2020 and 2021/2022 and measured by the 12 month increase in Consumer Price Index marks the eighth year in a consecutive decision.

Treasury Building
Treasury Building

The National Treasury sees Kenya's inflation margin swinging between  2.5 per cent – 7.5 per cent for the the two financial years to June 2022, according to an advisory to the Central Bank of Kenya.

The 5.0 percent average for the 2019/2020 and 2021/2022 financial years will be measured by the 12 month increase in Consumer Price Index, and marks the eighth consecutive year that Treasury has maintained the average.

"The Central bank of Kenya s therefore expected to achieve this 5.0 percent inflation target and will be accountable to the Government and the general public for its attainment," said the National Treasury  in its annual  notice to the CBK on Price Stability Target and Economic Policy.

The note issued last week by National Treasury CS Henry Rotich indicates that the inflation target is in line with the macroeconomic developments and targets underlying the FY 2019/20 budget and medium-term expenditure priorities for the period 2019/20 – FY 2021/22.

The notice comes ahead of the Monetary Policy Committee meeting set for today.

The means the price level on most commodities will remain within government long-term range to protect the consumers, especially after the delayed long rains of March to May rains, and the uncertainty in global oil prices.

“The flexible margin of 2.5 per cent on either side of the inflation target is to cater for effects of external shocks,” it added.

Year-on-year inflation was 5.70 per cent in June up from 5.49 per cent a month earlier in the financial year ending June.

It was however high at 6.58 per cent in April over the financial year.

The Treasury has said the target will help maintain macroeconomic stability and reduce undesired fluctuation in the economic performance.

This is as CBK projects economy to grow by 6.3 per cent in 2019, higher than the projected growth of 5.8 per cent by World Bank .

 

Even with the need to adhere to the notice on inflation, the monetary policies are set to remain unchanged, especially for the benchmark lending rate at 9.0 per cent as the bank keep watch on the macroeconomic stability.

In the last meeting held in May, the rate was left on the same point.

According to Treasury, part of this consolidation plan will gradually reduce the fiscal deficit to below 4.0 per cent of GDP over the medium term.

In the latest data by the CBK, shows the country’s account deficit narrowed to 4.2 per cent of GDP in 12 months to May from 5.8 per cent same period last year.

This was driven by strong exports in horticulture, steady diaspora remittance and lower food import that saw the deficit narrow to a six - year high.

“The consolidation will be achieved through revenue mobilisation and rationalisation of low priority recurrent expenditure while protecting the capital expenditure,” Treasury said.