HomeNewsKenya growth and inflation down, rates may be next

Kenya growth and inflation down, rates may be next

-

NAIROBI – Kenya’s economic growth slowed in the first quarter of 2012 from a year ago and data showed inflation had slowed further in June, strengthening the case for a start to monetary policy easing.

The Kenya National Bureau of Statistics said on Friday gross domestic product in east Africa’s biggest economy grew 3.5 percent in the first quarter of 2012 from 5.1 percent a year earlier, the slowest first quarter growth since 2008.

Growth was dented by high inflation rates, high interest rates and delays in the onset of the long rains, data showed.

“While the GDP data, by its nature, is unlikely to tell us much that is new about the economy, the relatively slow start to the calendar year does cement our view that we should see the start of a rate easing cycle by the CBK at its July MPC meeting,” Razia Khan, head of Africa research at Standard Chartered Bank, said.

Gross domestic product on a seasonally adjusted basis was flat in the first quarter, compared with 1.5 percent expansion in the same period last year.

The statistics office said there was improved performance in agriculture, transport and communication.

The central bank drove the benchmark lending rate to its highest ever level of 18 percent in December, from 7 percent in September, to help shore up a weak currency and tame inflation which hit a peak of 19.7 percent in November.

However, it said financial services slowed to 3.8 percent from 12.8 percent growth in the first quarter of 2011, while construction grew by 3.2 percent from 7 percent in the same period a year ago.

“The slowdown was broadly in line with expectations, with the agricultural sector continuing to recover after poor outturn … and the domestic demand-orientated sectors starting to feel the pinch from monetary tightening stepped up in fourth quarter 2011,” Mark Bohlund, senior economist for sub-Saharan Africa at IHS Global Insight, said.

“This is likely to be exacerbated in the second and third quarter although reduced price pressures, in food and energy prices most notably, should give some relief.”

The balance of payments rose to 37 billion shillings in the same period from 11.2 billion shillings in first quarter 2011.

INFLATION EASING

Falling food and fuel prices helped bring down year-on-year inflation more than expected in June.

Kenyan consumer prices fell 0.77 percent in the month, pushing the year-on-year rate to 10.05 percent from 12.22 percent in May, its lowest level since March 2011, data showed.

The consensus forecast in a Reuters survey of 11 analysts was for the rate to slow to 11.50 percent.

“Whilst the (Central Bank of Kenya) was reluctant to cut rates earlier – they focused on the strength of credit demand in April, and the turn in core inflation – we feel they should be somewhat more reassured by this outcome,” Khan said.

“Inflation is more definitively on a downtrend, and with the gap between the central bank rate (18 percent) and inflation (10 percent and falling), we think there is an even stronger case to start the easing cycle now.”

Food and non-alcoholic prices fell 1.91 percent in June, while housing, water, electricity, gas and other fuel costs slipped 0.20 percent.

On a year-on-year basis, the food and non-alcoholic beverages index, which makes up 36.04 percent of the total basket of goods and services used to measure inflation, rose 10.53 percent compared with a rise of 14.58 percent in May.

In June last year, the price of food and non-alcoholic drinks rose 22.52 percent year-on-year.

“While this is the most volatile category in the CPI, we now have stronger indications that food prices are finally coming down after the sharp increases over the past year,” said Bohlund.

Some analysts said the fall in inflation was still insufficient to push the MPC to cut rates at the next meeting brought forward to July 5 from July 10.

“While these data are encouraging, on their own they are unlikely to be sufficient to tilt the MPC into a cut at the next meeting,” said Leon Myburgh, sub-Saharan Africa strategist at Citibank.

Recent Posts

Stories you will enjoy

Recommended reading