Kenya c.bank worried about growth, not inflation

Kenya’s central bank sees no threat from inflation but is much more concerned about strengthening the economic recovery in east Africa’s largest economy, its governor told Reuters.

Kenya’s Monetary Policy Committee (MPC) kept the key Central Bank Rate unchanged at 6.75 percent last week, to allow earlier cuts to filter through.

In an interview late on Thursday on the sidelines of an African Development Bank assembly in Abidjan, central bank governor Njuguna Ndung’u said the bank remained more concerned about GDP than prices.

“There is no threat of inflation, but we’d like to strengthen fragile growth, through measures that will be announced in the (government) budget in the two weeks,” he said.

He said he thought lending rates were “stabilising at a lower level” and that would start to feed through to household borrowing and investment soon. He declined to say whether more cuts were on the horizon.

“We have set the rate at 6.75 percent and we want to wait and see how the market consolidates those gains,” Ndung’u said.

He said the bank’s next rate decision would depend on economic circumstances but that growth had been hurt by the volcanic ash in Iceland, which hurt exports, and financial turmoil in Europe.

Fresh flowers, one of Kenya’s main exports made a $10 million loss when tonnes of roses wilted or were destroyed while aircraft were grounded.

Ndung’u said he was concerned about the volatility of the Kenya shilling as a result of Europe’s debt crises. The shilling fell to a 13-month low against the dollar as it broke through 80.00 on May 25, before recouping some losses.

“Our domestic currency is becoming extremely unstable,” he said, but he added: “our policy on the shilling is that it’s free floating.”

Official projections predict economic growth of 4-5 percent this year, up from 2.6 percent in 2009, driven by a recovery in key sectors such as tourism and agriculture.

Reuters.